This article is authored by Regina (Rossmann) Vasarais, Manager, Training and Engagement at Convergence.

Many U.S. and Europe-based pension funds, insurance companies, and other institutional investors are still reluctant to invest in emerging markets. Often, the perceived risk of investing in these markets is higher than the actual risk. Credit rating agencies play an important role in this, because institutional investors rely on them to assess credit risk. Earlier this year, Allianz GI cited a lack of investment-grade ratings as one reason blended finance has not scaled as quickly as many had hoped.

Here, we take a closer look at the role credit ratings can play for blended funds, and the reasons why assessing blended finance structures is difficult for rating agencies.

In general, fund managers have several options to obtain a credit rating for private credit strategies. First, they can obtain an external credit rating for the whole (blended) fund. Secondly, they can rate each individual project before capital deployment individually, using a methodology aligned with that of an established credit rating agency. And third, they can obtain a credit rating only for the senior tranche of the fund – the tranche that is aiming to attract institutional capital. Some examples below:

1. Obtaining a credit rating for the entire blended fund
The Emerging Africa and Asia Infrastructure Fund (EAAIF) is one of the blended funds that has obtained an investment grade credit rating. Managed by NinetyOne, EAAIF is a part of the Private Infrastructure Development Group (PIDG), and one of the first blended finance debt funds for African infrastructure (vintage 2002, see Convergence case study).

In 2022, Moody’s, one of the top tier rating agencies, assigned it a foreign currency long-term issuer rating of A2 with a stable outlook. According to Moody’s, the main factors for this rating were:

1. A strong capital position that reflects moderate but rising leverage, and a diversified lending portfolio notwithstanding weak asset credit quality;
2. A robust base of liquid assets stemming from highly-rated development finance institutions and commercial lenders;
3. A high level of member support from a base of highly-rated shareholders of PIDG, reflecting the fund’s strategic position in PIDG.

In 2024, Moody’s affirmed the fund’s A2 credit rating.

2. Internally rate each individual project before capital deployment
ImpactA Global ("ImpactA"), a women-led investment company based in London, chose an internal rating approach for their strategy. ImpactA set out to launch a fund, the ImpactA Global Fund, that provides debt financing for sustainable infrastructure projects (renewable energy, clean mobility, health, water and sanitation) in emerging markets. In 2023, ImpactA entered into a partnership with Legal & General’s (L&G) alternative assets platform.

Having a robust credit rating methodology was important for L&G in considering ImpactA’s strategy. L&G supported ImpactA in the analysis of various rating agency approaches and, after careful consideration, ImpactA decided that each individual transaction would be rated under a framework closely aligned to Moody’s methodology. L&G’s Head of Infrastructure Credit Rating worked with management in the design of a set of policies and procedures to govern the ratings process and ImpactA has subsequently hired an experienced credit rating analyst who now leads the rating process reporting to the Chief Revenue Officer. The credit rating analysis provides a rigorous and transparent process that forms a key part of the broader investment decision.

In March 2025, ImpactA announced it had gathered more than $200 million in commitments toward its Fund. In addition to the initial support from L&G, the Fund gained backing from the UK Government via its MOBILIST programme, from IDB Invest, and several private institutions.

The strategy of rating individual projects is a viable approach for ImpactA given the nature of the underlying investments in infrastructure project finance. However, this approach might pose challenges to funds that, for example, aim to lend to SMEs with limited credit history in potentially volatile markets.

3. Obtain a rating for the senior tranche only
Other fund managers choose to obtain a credit rating for only the senior debt portion of a blended fund. Yet, this is not an easy undertaking.

One case in point is Lendable, a debt finance provider to fintech companies across frontier and emerging markets. For Lendable’s MSME Fintech Credit Fund II, Lendable obtained an investment grade rating for the senior debt portion of the fund’s capital. Lendable’s more than eight-year track record in lending to similar fintech companies with very low historical loss rates, along with its existing portfolio, were key factors supporting the rating, as the new fund’s strategy closely mirrors the current portfolio. The rating agency also highlighted the 60% subordination provided by the fund’s junior tranches—comprising equity and catalytic debt—which would absorb potential losses first, ensuring additional protection for senior debt holders. Issued by an ESMA-accredited agency, the rating met institutional investors' requirements and enabled the company to attract fully commercial investors. Going forward, Lendable aims to explore how its investees, fintech market leaders, can work with local and global rating agencies to attract top tier institutional investors alongside Lendable.

Similar to Lendable, Mirova, part of Natixis IM, also sought to obtain a credit rating for only the most senior tranche of one of its blended funds.

The Mirova Gigaton Fund is a $332 million blended finance debt fund composed of three tranches that aims to accelerate the clean energy transition. The fund provides loans in the renewable energy sub-sectors such as solar home systems, agri-solar, commercial & industrial, telco ESCO, mini-grids sectors in Africa, Asia, and Latin America.

To increase the attractiveness of the super senior tranche to private investors, Mirova had multiple conversations with several top tier rating agencies to explore whether a credit rating for the super senior tranche could accurately reflect the de-risking mechanisms used in the fund structure.

In 2021, Mirova obtained a grant under the Gender Responsive Climate Finance Window, funded by Global Affairs Canada and managed by Convergence. Part of this grant supported the efforts to obtain a credit rating.

Mirova also selected a third-party company specialized in solvency credit rating calculation. This was necessary given the lack of track record and data on renewable energy funds in emerging markets. The lack of data also meant that rating agencies had to adapt their methodology, and involve several internal teams to evaluate this unusual structure.

Obtaining a credit rating for the super senior tranche that factors in that level of protection proved difficult. The acceleration clauses required by some Development Finance Institutions (DFIs) for their participation in the mezzanine tranche of the fund were one of the barriers identified. The rating agency’s analysis found that in the case of liquidation after the acceleration by an investor (i.e. DFI), the waterfall structure may not remain intact, since in some scenarios the DFI mezzanine notes could be treated pari passu with the super senior private investor notes, instead of providing protection. As rating agencies integrate the most conservative scenario, the mezzanine DFI tranches will not be integrated in the rating scoring and cannot be considered adequate protection.

Through several discussions with various rating agencies, Mirova concluded that only in specific cases can rating agencies consider subordinated debt as protection for senior debt.

That said, there was good news, too. The $50 million portfolio guarantee provided by the Swedish Development Agency, Sida, was considered as additional protection in the rating agency’s assessment. The innovative use of Sida’s guarantee allowed, for the first time, for the guarantee to be treated similarly to equity risk, increasing confidence for senior investors without diluting junior commitments. Specifically, the subordination ratios were calculated using the junior equity as well as the unused portion of the guarantee.

In the end, Mirova decided not to obtain the credit rating for the super senior tranche of this fund, given the rating would not have had the desired effect of increasing the attractiveness of the fund to institutional investors.

Conclusion
For fund managers that aim to attract institutional capital at scale, increasing the dialogue with rating agencies is crucial. By building on the experiences other fund managers have collected in the past, fund managers can avoid duplicating efforts, and accelerate progress.

The above analysis has focused on individual efforts of fund managers to obtain credit ratings on their work. Looking beyond individual funds, data transparency remains a broader issue. Convergence and others have argued repeatedly that DFIs and Multilateral Development Banks should share the payment track record of their portfolios more extensively. The reports recently released by the Global Emerging Markets Risk Database Consortium are a step in the right direction. If more such data on credit performance of lending to private and public counterparts, default rates, as well as recovery rates for sovereign and sovereign-guaranteed lending is publicly released, this would immensely help those conducting credit rating exercises in emerging markets.