DBRS Assigns Provisional Ratings to the Senior Funding Facility and the Mezzanine Funding Facility of BlueMountain CLO 2016-3 Ltd.

DBRS, Inc. (DBRS) has today assigned the following provisional ratings to the Senior Funding Facility and the Mezzanine Funding Facility (together, the Facilities) of BlueMountain CLO 2016-3 Ltd.:

-- Senior Funding Facility due May 2025 rated A (sf)
-- Mezzanine Funding Facility due May 2025 rated BBB (low) (sf)

The provisional ratings on the Facilities are being assigned pursuant to the Warehouse Agreement, dated as of May 26, 2016, by and among BlueMountain CLO 2016-3 Ltd. as Borrower; Barclays Bank PLC, New York Branch (Barclays) as Facility Agent; BlueMountain Capital Management LLC (BlueMountain) as Collateral Manager; and U.S. Bank, N.A. as Collateral Administrator.

The Borrower is a limited liability company incorporated under the laws of the Cayman Islands. This transaction is set up as a cash flow securitization, which will be collateralized by a portfolio of leveraged loans subject to Collateral Quality and Portfolio Profile Tests. As of the provisional rating date, there exist no collateral loans in the transaction portfolio. BlueMountain will act as the Collateral Manager of the Borrower.

The Borrower will start to draw on the Facilities based on a predetermined schedule. Upon each drawing request, the Collateral Manager will comply with certain portfolio tests. The warehouse will have a nine-month reinvestment period followed by an amortization period. The warehouse will reach its maturity date at the earliest of the: CLO Closing Date; the business day following the Amortization Period End Date; an Early Maturity Date; or May 2025. An Early Maturity Date can be caused by an Optional Early Maturity Date (no earlier than 12 months after the reinvestment period end date) following an Event of Default (EOD) or at the sole option of the Instructing Lender (Barclays) following an EOD.

Under the Warehouse Agreement, upon an occurrence of an EoD, the Instructing Lender may, in its sole option, elect to designate an Early Maturity Date and liquidate the portfolio, which could adversely affect the Mezzanine Lenders and potentially affect ratings volatility on the Mezzanine Funding Facility.

The above ratings on the Facilities are provisional. Finalized ratings will be issued upon receipt of confirmation that the aggregated funding amount of the Facilities has reached $30 million as per the funding matrix stipulated in the Warehouse Agreement. To the extent that the documents and information provided to DBRS by the Borrower, Barclays Bank Plc and the Collateral Manager as of this date differ from the executed versions of the governing transaction documents, DBRS may assign lower finalized ratings to the Facilities or may avoid assigning finalized ratings to the Facilities altogether.

The provisional ratings reflect the following primary considerations:

(1) The Warehouse Agreement dated as of May 26, 2016.

(2) The integrity of the transaction structure.

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

(4) DBRS’s assessment of the collateralized loan obligation management capabilities of BlueMountain.

The rating on the Senior Funding Facility addresses the timely payment of the Senior Base Interest Amount and the ultimate payment of Senior Funding Amounts on or before the Scheduled Maturity Date in May 2025. The rating on the Mezzanine Funding Facility addresses the ultimate payment of the Mezzanine Base Interest Amount and the ultimate payment of the Mezzanine Funding Amounts on or before the Scheduled Maturity Date in May 2025. For the avoidance of doubt, these ratings do not address the Senior Additional Interest Amount or the Mezzanine Additional Interest Amount.

To assess portfolio credit quality, DBRS will provide a credit estimate or internal assessment for each corporate obligor not publicly rated in the portfolio. Credit estimates are not ratings; rather, they represent a primarily model-driven default probability for each obligor that is used in assigning ratings to the transaction.

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

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

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