KBRA assigns an A rating to the Class A Notes, a BBB rating to the Class B Notes, a BBB- rating to the Class C Notes, and a BB+ rating to the Class D Notes (together, the “Notes”) issued by Sagard Credit Partners III-U RN (Canada) LP (the Issuer, Borrower, or Partnership). This published rating report summarizes KBRA’s analysis of the Notes and KBRA’s ratings address the Issuer’s ability to fulfill its obligations on the ultimate interest payment and ultimate repayment of the Notes’ principal by their legal final maturity.
Key Credit Considerations
Asset Coverage: The Class A Notes, Class B Notes, Class C Notes and Class D Notes have advance rates and maximum LTVs of 45.0%, 67.5%, 74.5%, and 80.0%, respectively. This corresponds to asset coverage values shown in the Liability Table shown earlier.
Transaction Structure: The transaction benefits from structural credit protections that support the assigned ratings, including initial overcollateralization and subordination across the capital structure, projected excess spread available to absorb losses and performance triggers.
Cash Flow Priority: The transaction utilizes a sequential priority of payments. During the Investment Period, interest on the Notes is paid sequentially, and principal is only redirected to repay the senior notes if the Asset Coverage Test (125%) is not satisfied. Following the end of the Investment Period, all available principal and excess interest proceeds, after paying fees and interest, are applied sequentially to amortize the Notes.
Excess Spread: KBRA considered assumptions provided by Sagard, as well as its analysis of Sagard Credit Partners II, which indicated an average spread of 7.50% based on recent originations, along with other relevant factors, to arrive at a base-case weighted average spread assumption of 6.83%. As the investment guidelines allow up to 5% equity exposure, the portfolio was modeled accordingly. The targeted allocation can be found above in the Executive Summary. The table to the right summarizes the applicable coupon levels, gross excess spread, and corresponding interest coverage metrics for each class of Notes, assuming 0% SOFR.
Asset Coverage Test: The Asset Coverage test is set at 125% for Class A, Class B, and Class C cumulatively. At closing, based on the initial capital structure and stated advance rates, the Coverage Ratio is expected to be approximately 134.2%. A decline of approximately 7% in asset value ($137.5 million to $128 million) would result in a breach of the Coverage Test. This is applicable during the Investment Period and if the test is in breach, excess cash flows after paying fees, expenses and interest payments on the Class A, Class B and Class C Notes will be used to repay the Notes principal in order of seniority to bring the asset coverage in compliance.
Structural Subordination of Class D Interest During Coverage Test Breach: The transaction’s Priority of Payments introduces structural subordination for the Class D Notes during the Investment Period. The Coverage Test for the Class A, Class B, and Class C Notes is set at 125%; asset coverage for the Class A, Class B, and Class C Notes is 134.2% at issuance. If the Coverage Test is not satisfied, available proceeds are diverted to sequentially amortize the Class A, Class B, and Class C Notes until the Coverage Test is cured, prior to any payment of accrued or deferred interest on the Class D Notes. As a result, interest payments on the Class D Notes may be deferred for a potentially extended period during times of portfolio stress or deterioration in asset coverage. This feature increases the sensitivity of the Class D Notes to collateral performance and coverage levels relative to the senior classes and may result in payment volatility and extension risk until compliance with the Coverage Test is restored. This feature is beneficial to the Class A, B and C notes, but a negative risk factor for Class D notes.
Blind Pool Risk – Lien type and Asset Quality: The Master Fund’s portfolio is expected to comprise at least 75% first lien senior secured middle market corporate loans and up to 5% first lien last out, 5% second lien loans, 5% Holdco, and 10% for unsecured loans. KBRA analyzed a sample of 11 investments from Sagard Credit Partners II. Sagard believes these 11 investments are expected to be similar to the investments in the fully ramped portfolio. Based on this review, KBRA determined an asset quality equivalent to ‘ccc+’ credit risk with a lien type of 70.4% first lien, 13.5% first lien last out, 12.2% second lien, and 3.8% Holdco. However, as the actual assets to be acquired by the Master Fund have not yet been identified, the portfolio composition, lien mix, and obligor characteristics may differ from those analyzed. Variations in portfolio construction could affect the expected default and recovery assumptions, and the level of defaults the Notes are exposed to under KBRA’s stress scenarios.
Ramp-Up Risk: The Master Fund has an investment period of three years (subject to extension), during which Sagard is expected to identify and deploy capital into investments consistent with its stated direct lending strategy. The ability to successfully ramp the portfolio to its targeted size and diversity may be influenced by market conditions, including competition within the direct lending market, broader credit environment dynamics, economic downturns, or reduced transaction volume. If the portfolio does not ramp as anticipated and remains more concentrated than expected, obligor concentration and idiosyncratic risk could increase, potentially affecting default expectations, recovery outcomes, and ultimately the credit profile of the Notes. Sagard maintains established origination channels and has ramped two prior flagship funds under a similar strategy. In addition, portfolio concentration limits, a predominantly first-lien focus, and the transaction’s asset coverage test provide structural protections that may mitigate some ramp-related risks. The availability of investment period extensions may also provide additional flexibility to achieve the targeted portfolio composition in varying market conditions.
Valuation: The Master Fund is expected to hold investments for which no public market exists, thus limiting price discovery. As a result, the valuations of these investments are reliant on an independent third-party agency providing quarterly valuation. Valuations of portfolio companies are determined using ongoing credit monitoring, financial modeling (including base and downside recovery cases), leverage and enterprise value analysis, and current market conditions to determine fair value at each reporting date and are approved by Sagard Investment Valuation Committee. To that extent, assigned values can be meaningfully different from actual realized values if investments were to be liquidated. The Valuation process is explained within the Manager Review section below.
Manager Experience and Track Record: Sagard was founded in 2002 and has developed into a global alternative asset management platform. Since launching its North American operations in 2005, the firm has expanded its investment capabilities across private equity, private credit, venture capital, and real estate strategies. As of December 31, 2025, Sagard manages approximately $46 billion in assets across more than 20 strategies and operates with over 550 employees globally. Sagard Credit Partners (SCP), launched in 2016, represents the firm’s direct lending platform focused on North American middle market companies. Since inception, SCP has deployed approximately $3.6 billion of capital and operates with a dedicated team of more than 20 professionals. The strategy focuses on senior secured lending and leverages Sagard’s broader platform resources and institutional infrastructure. For additional information regarding the investment strategy, governance framework, and team composition, see the “Manager Review” and “Investment Strategy and Track Record” sections of this report. Based on this assessment, KBRA did not apply a Qualitative Factor Adjustment (QFA) related to the manager.
Rating Sensitivities
Asset Coverage: A significant de-levering of the Note balance and/or a trend of Fund performance that exceeds current expectations may result in a positive rating change.
Underperformance of Fund Collateral: A deterioration in Fund performance that changes KBRA’s view of the strength of the transaction cash flows may lead to a downward rating revision. KBRA may additionally consider a downward rating revision if the diversity of underlying assets were to change or if the portfolio were to become concentrated in more volatile asset classes.
Final Portfolio Composition Dependent on Successful Ramp-Up: KBRA’s expectations of the portfolio’s credit profile were based on an evaluation of the expected portfolio provided by Sagard, along with an analysis of Sagard Credit Partners II, and other relevant factors. In the event the final portfolio does not reflect a similar size, diversity, yield, and credit profile as assumed, KBRA’s view of the asset quality of the underlying loans may change, which may impact the ratings assigned to the Notes.
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Methodologies
Disclosures
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.
Information on the meaning of each rating category can be located here.
This credit rating is endorsed by Kroll Bond Rating Agency Europe Limited for use in the European Union and by Kroll Bond Rating Agency UK Limited for use in the UK. Information on a credit rating’s endorsement status is available on its rating page at KBRA.com.
Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
There are certain issuers, entities or transactions rated by KBRA Europe or KBRA UK that may be or have relationships with Shareholders and/or Shareholder-Related Companies, as that term is defined in KBRA’s Shareholder and Shareholder Related Companies for KBRA Europe and KBRA UK Policy and Procedure. Relevant disclosure information may be found here.
About KBRA
Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.
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