DBRS Confirms Rating on the Class A-R Loans Issued by Brightwood Capital Offshore Fund IV SPV-4, LLC

DBRS, Inc. (DBRS) confirmed the rating of A (low) (sf) on the Class A-R Loans issued by Brightwood Capital Offshore Fund IV SPV-4, LLC up to the Total Class A-R Commitment of $108,000,000 pursuant to the Credit Agreement dated as of November 19, 2018, as amended by the First Amendment to Credit Agreement dated as of April 17, 2019, among Brightwood Capital Offshore Fund IV SPV-4, LLC as Borrower; Capital One, National Association (rated “A” with a Stable trend by DBRS) as Administrative Agent for the Lenders; U.S. Bank National Association (rated AA (high) with a Stable trend by DBRS) as Collateral Agent and Custodian; and the Lenders referred to therein.

The rating confirmation with respect to the Class A-R Loans is being provided in relation to the execution of the First Amendment to Credit Agreement dated as of April 17, 2019, entered into by and among the Borrower, the Administrative Agent, the Collateral Agent and the Lenders.

The rating on the Class A-R Loans addresses the timely payment of interest (excluding any Excess Interest Amounts and interest attributable to the Increased Applicable Margin, each as defined in the amended Credit Agreement) and the ultimate payment of principal on or before the Stated Maturity (as defined in the amended Credit Agreement).

The Class A-R Loans are collateralized primarily by a portfolio of U.S. middle-market corporate loans and is managed by Brightwood SPV Advisors, LLC, which is 100% equity-owned by Brightwood Capital Advisors, LLC. DBRS considers Brightwood SPV Advisors, LLC to be an acceptable collateralized loan obligation (CLO) manager.

The rating reflects the following:

(1) The Credit Agreement dated as of November 19, 2018;
(2) The First Amendment to Credit Agreement dated as of April 17, 2019;
(3) The integrity of the transaction structure;
(4) DBRS’s assessment of the portfolio quality;
(5) Adequate credit enhancement to withstand projected collateral loss rates under various cash flow stress scenarios; and
(6) DBRS’s assessment of the origination, servicing and CLO management capabilities of Brightwood SPV Advisors, LLC and 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.

Under the Credit Agreement, upon the occurrence and during the continuance of an event of default (EOD), the Collateral Agent may be directed by a Majority of the Controlling Class (as defined in the Credit Agreement) to sell or otherwise dispose of the Collateral as a remedy, which could disadvantage any junior classes of Loans issued and subject the Class A-R Loans to additional downgrade risk and/or default risk. These EODs include a Class A Overcollateralization Ratio less than or equal to 125.0%.

Additionally, under the Credit Agreement, upon the occurrence and during the continuance of an EOD, 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 of the Credit Agreement, in which amounts due to the Class A-R Loans will include additional Excess Interest Amounts and Increased Costs (as defined in the Credit Agreement). Thus, the rating assigned to the Class A-R Loans could be subject to downgrade as a result of any EOD and subsequent movement to Section 6.4.

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

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

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.

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