DBRS Finalizes Provisional Rating on the Facility of Allegro CLO VIII Funding, LLC

DBRS, Inc. (DBRS) finalized the following provisional rating to the Facility of Allegro CLO VIII Funding, LLC:

-- Facility due March 2027 rated BBB (sf)

The rating on the Facility is being finalized pursuant to the Warehouse Agreement, dated as of March 15, 2018, between Allegro CLO VIII Funding, LLC as Borrower; Barclays Bank PLC, New York Branch (Barclays) as Facility Agent; AXA Investment Managers, Inc. (AXA IM) as Collateral Manager; and U.S. Bank, N.A. as Collateral Administrator, Securities Intermediary and Security Agent.

The rating on the Facility addresses the timely payment of the Base Interest Amount and Additional Payment Amounts and the ultimate payment of Funding Amounts on or before the Scheduled Maturity Date in March 2027. For the avoidance of doubt, this rating does not address the Additional Interest Amount.

The Borrower is a limited-liability company established 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 finalized rating date, the transaction consists of $50.1 million of senior secured loans to 22 unique obligors, and the Borrower will continue to draw on the Facility based on a predetermined schedule. Upon each drawing request, the Collateral Manager will comply with certain portfolio tests. The warehouse will have a reinvestment period end date in March 2019, followed by an amortization period. The warehouse will reach its maturity date at the earliest of the Collateralized Loan Obligations (CLO) Closing Date, the Scheduled Maturity Date in March 2027 or the date upon which the final payment on the last of the collateral of the portfolio has been received.

An early maturity date can be caused by an Optional Early Maturity Date (no earlier than 12 months after the reinvestment period end date) or at the sole option of the Instructing Party (Barclays) following an Event of Default (EOD). Under the Warehouse Agreement, upon an occurrence of (and during the continuation of) an EOD, the Instructing Party (Barclays) may, in its sole option, elect to designate an Acceleration Date and liquidate the portfolio.

The subordinated investor has the right to declare an Optional Early Maturity Date prior to the CLO Pricing Date and, provided that there has not been an EOD, if the portfolio market value is less than 97.5% of the aggregate par of all Collateral Obligations, and either (1) the reinvestment period end date has occurred or (2) the CLO Pricing Date has not occurred within 90 days of the Warehouse Closing Date. In the event that the subordinated investor designates an Optional Early Maturity Date, the subordinated investor will be authorized to direct the sale of all Collateral Obligations pursuant to the terms of the Warehouse Agreement.

As the trades settle in the warehouse portfolio, under the drawing schedule, Barclays (as Lender) will continue to fund the Facilities upon the Borrower’s request. In its analysis, DBRS has considered Barclays’ ability to fund the Facilities and it will continue to monitor the transaction as part of ongoing surveillance. Barclays Bank PLC currently has a public Long-Term Debt rating of “A” with a Stable trend by DBRS.

The finalized rating reflects the following primary considerations:

(1) The Warehouse Agreement dated as of March 15, 2018.

(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 AXA IM.

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 a rating to the transaction.

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.

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 for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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