DBRS Assigns Ratings to the Class A-R Loans, Class A-T Loans and Class B Loans Issued by Brightwood Capital Fund III Holdings SPV, LLC

DBRS, Inc. (DBRS) has today assigned ratings of AAA (sf) to the Class A-R Loans and Class A-T Loans (collectively, the Class A Loans) to be issued by Brightwood Capital Fund III Holdings SPV, LLC up to the Total Class A-R Commitment of $23,800,000 and Total Class A-T Commitment of $335,000,000. DBRS has also assigned a rating of A (sf) to the Class B Loans to be issued by Brightwood Capital Fund III Holdings SPV, LLC up to the Total Class B Commitment of $64,000,000. Brightwood Capital Fund III Holdings SPV, LLC is managed by Brightwood Capital Advisors LLC.

The Class A Loans and Class B Loans were issued pursuant to the Credit Agreement as of April 29, 2016, among Brightwood Capital Fund III Holdings SPV, LLC as Borrower; Natixis, New York Branch as Administrative Agent for the Lenders; Brightwood Capital Fund III Holdings, LP as Administrative Agent for the Subordinated Noteholders; U.S. Bank National Association as Collateral Agent and Custodian; and the Lenders and Subordinated Noteholders party thereto.

The rating reflects the following:

(1) The Credit Agreement dated April 29, 2016.

(2) The integrity of the transaction structure.

(3) DBRS’s assessment of the portfolio quality.

(4) Adequate credit enhancement to withstand projected collateral loss rates under various cash flow stress scenarios.

(5) DBRS’s assessment of the origination, servicing and CLO management capabilities of Brightwood Capital Advisors LLC.

To assess portfolio credit quality, DBRS provides a credit estimate or internal assessment for each non-financial corporate obligor in the portfolio, not rated by DBRS. Credit estimates are not ratings; rather, they represent a model-driven default probability for each obligor that is used in assigning a rating to the facility.

The DBRS ratings on the Class A Loans address Brightwood Capital Fund III Holdings SPV, LLC’s ability to make timely payments of interest and ultimate payment of principal on or before the Stated Maturity (as defined in the Credit Agreement referred to above). The DBRS rating on the Class B Loans addresses Brightwood Capital Fund III Holdings SPV, LLC’s ability to make ultimate payment of interest and principal on or before the Stated Maturity.

Under the Credit Agreement, upon the occurrence and during the continuance of an Event of Default, the Collateral Agent may be directed by a Majority of the Controlling Class (as defined in the Credit Agreement referred to above) to sell or otherwise dispose of the Collateral as a remedy, which could disadvantage the Class B Loans. One of these Events of Default is the Class A Overcollateralization Ratio less than or equal to 125.0%. In its analysis, DBRS has taken these transaction characteristics into account in the final ratings.

Additionally, under the Credit Agreement, upon the occurrence and during the continuance of an Event of Default, the Administrative Agent or a Majority of the Controlling Class may declare the principal and interest on all amounts payable by the Borrower due and payable. Upon that declaration, all proceeds received by the Borrower will be applied in accordance with Section 6.4, in which amounts due to the Loans will include additional Excess Interest Amounts (as defined in the Credit Agreement referred to above). Thus, the ratings assigned on the Class A Loans and Class B Loans are subject to downgrades as a result of these additional Excess Interest Amounts in the event of any Event of Default and movement to Section 6.4 following an acceleration of the debt.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating CLOs and CDOs of Large Corporate Credit, which can be found on our website under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.