DBRS Upgrades Ratings on the Loans Issued by Brightwood Fund III Static 2018-1, LLC

DBRS, Inc. (DBRS) upgraded the rating on the Class A Loans issued by Brightwood Fund III Static 2018-1, LLC up to the Total Class A Commitment of $404,200,000 (the Class A Loans) to AAA (sf) from AA (sf); upgraded the rating on the Class B Loans issued by Brightwood Fund III Static 2018-1, LLC up to the Total Class B Commitment of $40,000,000 (the Class B Loans) to AA (low) (sf) from A (sf); and upgraded the rating on the Class C Loans issued by Brightwood Fund III Static 2018-1, LLC up to the Total Class C Commitment of $12,700,000 (the Class C Loans; together with the Class A Loans and the Class B Loans, the Loans) to A (sf) from BBB (high) (sf). The Issuer is managed by Brightwood Capital Advisors, LLC.

The ratings on the Loans are being assigned pursuant to the Credit Agreement dated as of July 16, 2018, among Brightwood Fund III Static 2018-1, LLC as Borrower; U.S. Bank National Association as Administrative Agent, Collateral Agent, and Custodian; and the Lenders referred to therein.

The Loans will be collateralized primary by a portfolio of U.S. middle-market corporate loans. This portfolio is static in nature and does not allow for reinvestment.

The rating on the Class A Loans addresses the timely payment of interest (excluding any Excess Interest Amounts, as defined in the Credit Agreement referred to above) and the ultimate payment of principal on or before the Stated Maturity (as defined in the Credit Agreement referred to above). The ratings on the Class B Loans and the Class C Loans address the ultimate payment of interest (excluding the respecting Class B Deferred Interest, Class C Deferred Interest and any Excess Interest Amounts, as defined in the Credit Agreement) and the ultimate payment of principal on or before the Stated Maturity (as defined in the Credit Agreement referred to above).

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, the Administrative 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 and Class C Loans. Thus, the ratings assigned on the Class B Loans and Class C Loans are subject to additional downgrade risk and/or default for non-payment.

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 and Increased Costs (as defined in the Credit Agreement referred to above). Thus, the ratings assigned to the Class A Loans, Class B Loans and Class C 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.

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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

This rating is endorsed by DBRS Ratings Limited for use in the European Union. The following additional regulatory disclosures apply to endorsed ratings:

This is the first rating action since the Initial Rating Date.

For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Lead Analyst: Quan Yoon
Rating Committee Chair: Jerry van Koolbergen
Initial Rating Date: July 18, 2018

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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