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KBRA Assigns BBB Rating to Preston Hollow Capital, LLC

NEW YORK (December 14, 2021) – Kroll Bond Rating Agency (KBRA) assigns a BBB issuer rating to Preston Hollow
Capital, LLC (“PHC” or the Company), a private investment company founded in 2014 and headquartered in Dallas
Texas, specializing in direct and secondary market investments in municipal securities. The rating Outlook is Stable.
Key Credit Considerations

The rating reflects PHC’s deep and experienced management team with decades of municipal finance and real estate lending experience, primarily senior secured, well-collateralized and covenant-heavy debt investments diversified by region and sector, low leverage with a target of approximately 1x Recourse Debt-to-Equity (excluding non-recourse term-matched trusts and including a contemplated preferred equity issuance as debt), strong underwriting and risk management, strong earnings metrics, permanent equity capital from established institutional investors and PHC’s management team including the President/CEO and an adequate funding/liquidity profile with significant unencumbered assets.

PHC’s funding strategy is focused primarily on non-recourse term matched trusts (TMTs) which provides a more stable
source of borrowing compared to short-term recourse facilities. KBRA views PHC’s TMT funding as relatively stable given maturities are long-term and generally matched with the maturities of assets collateralizing the TMT, there is no markto-market collateral posting required, and TMTs are fully non-recourse to PHC. In addition, the rating considers PHC’s demonstrated strong underwriting with low losses and successful workouts of distressed credits through the Covid-19 pandemic. These strengths are counterbalanced by the risks related to the business of investing in illiquid noninvestment grade or unrated municipal debt, relatively high single credit concentration (top 5 credits comprise 31% of portfolio), high dividend payouts and a focus on secured debt financing with fewer sources compared to higher-rated finance companies.

The Stable Outlook reflects the Company’s low leverage, low non-accruals and losses through the Covid-19 pandemic
to-date and adequate liquidity with significant unencumbered assets.

Click here to view the report. To access ratings and relevant documents, click here.

Analytical Contacts
Michael Dodge, Director (Lead Analyst)
+1 (646) 731-3349

Danise Chui, Managing Director (Rating Committee Chair)
+1 (646) 731-2406

Marjan Riggi, Senior Managing Director
+1 (646) 731-2354

Business Development Contact
Arielle Smelkinson, Senior Director
+1 (646) 731-2369

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.

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