I think most use a blended approach, with the largest / riskiest LPs getting a deeper review and others being rated based on higher level characteristics. LPs who are too risky and/or cant be rated should get kicked out of the borrowing base. NB: I don’t think LP risk is the only criteria, and similar to a reply above, Fund and GP factors are also really important (if not more so). Given the lack of historical defaults, it’s important to have a good conceptual understanding of what could drive defaults… which varies based on the type of LP, the legal frameworks for the LP’s commitments, and the likelihood of things going sideways for the fund/GP.

Worth skimming the characteristics the ratings agencies use to assess sub lines for some additional color. (portfolios of sub lines get rated both for distribution to US Life Insurers, who rely on IG ratings, and for other distribution mechanisms). Summarized nicely by KBRA below

Subscription Lines: Why Are Ratings Needed?
https://www.kbra.com/publications/KKbkyMsj/subscription-lines-why-are-ratings-needed?format=file

Subscription Finance Rating Criteria [Fitch]
https://www.fitchratings.com/research/fund-asset-managers/subscription-finance-rating-criteria-08-06-2023

Methodology For Rating Subscription Lines Secured By Capital Commitments [S&P]
https://disclosure.spglobal.com/ratings/en/regulatory/article/-/view/sourceId/13199000

Subscription Credit Facilities: Proposed methodology [Moodys]
https://ratings.moodys.com/api/rmc-documents/410678

For our Fed remediation plan for Sanctions, Audit was key part of the remediation plan. We submitted a full Audit “TOM” including resource model, training, risk assessment, audit testing program, and senior mgmt. reporting. There was also a layered sign off for smaller vs. golden milestones, where Audit got involved to provide design assurance vs. operational effectiveness.

I have seen that and a bit of controversy around it

Promise-to-pay on its own is not a concession… agreeing to pause the contractual dunning process & associated late-fees, however, can be easily seen as one — materiality concerns should apply here, though - banks could easily put an optional clause of ‘dunning-process & collecting/waiving late fees at sole discretion of the bank’ into the contract at which point there no longer is a concession-event vs pre-agreed optionality

Financial difficulties is where you also would want to differentiate: is a delay of 2-3 months, below 90dpd, credible auto-cure by the end really a situation of financial difficulties? Here it is easy to define materiality thresholds that pass the EBA guidelines

JST/ Inspectors I speak with are typically a bit more concerned with banks being 'laissez faire' with this, than with the actual risk. I have seen cases where the bank had no policy or controls around this and then it resulted in a finding on potential underestimation of forbearance / S2 -- proper policy writing and guidance to relationship managers should close the perceived governance gap

There is a clear understanding of bad incentives: if you punish banks for agreeing with clients in this way by enforcing a cure period that is worse than 'do nothing', it clearly creates a conflict, that should be put on the table when arguing against an overly conservative view. But careful that not all 'silent acceptance' of delays are then afterwards equated with active concessions