DBRS Finalizes Provisional Rating on the Facility of TCI-Flatiron 2018-1 Funding LLC

DBRS, Inc. (DBRS) finalized the following provisional rating on the Facility of TCI-Flatiron 2018-1 Funding LLC:

-- Facility due May 2027 rated BBB (sf)

The rating on the Facility is being finalized pursuant to the Warehouse Agreement, dated as of May 16, 2018, between TCI-Flatiron 2018-1 Funding LLC as Borrower; Barclays Bank PLC, New York Branch (Barclays) as Facility Agent; TCI Capital Management LLC (TCI Capital) as Collateral Manager; and Deutsche Bank Trust Company Americas 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 May 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, there exists $42.13 million of senior secured term loans to 30 unique obligors. TCI Capital will act as the Collateral Manager of the Borrower. Additionally, and pursuant to the transaction documents, NYL Investors LLC (NYL) will be engaged by TCI Capital as a “sub-advisor” to the Collateral Manager.

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 May 2019, followed by an amortization period. The warehouse will reach its maturity date at the earliest of: the CLO Closing Date; the Scheduled Maturity Date in May 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 EOD. Under the Warehouse Agreement, upon an occurrence of (and during the continuation of) an Event of Default, the Instructing Party (Barclays) may, in its sole option, elect to designate an Acceleration Date and liquidate the portfolio.

The transaction contains collateral manager and subordinated lender types of Events of Default, which could lead to acceleration and liquidation. However, the transaction is at closing a single-lender facility, where Barclays retains 100% of the rated Facilities. If at any time additional lenders are admitted into either rated facility, DBRS may either take a rating action or withdraw the rating on such facility at that time, subject to future amendments.

DBRS’s rating analysis does not take into account the risk of loss due to liquidation at market prices after an Event of Default has occurred.

The subordinated investor has the right to declare an Optional Early Maturity Date prior to the CLO Pricing Date if, provided that there has not been an EOD, 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 Facility, 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 May 16, 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 TCI Capital and NYL Investors LLC.

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 principal methodology is Rating Methodology for CLOs and CDOs of Large Corporate Credit, which can be found on dbrs.com under Methodologies.

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 in connection with this rating action.

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