DBRS Morningstar Confirms Provisional Ratings and New Ratings on Notes Issued by BlackRock DLF IX 2019 CLO, LLC

DBRS, Inc. (DBRS Morningstar) confirmed its provisional ratings of AAA (sf) on the Class A-1 Notes and BBB (low) (sf) on the Combination Notes to be issued by BlackRock DLF IX 2019 CLO, LLC (BlackRock IX CLO or the Issuer) as well as confirmed its ratings of AA (sf) on the Class A-2 Notes, A (sf) on the Class B Notes, BBB (sf) on the Class C Notes, BB (sf) on the Class D Notes, and B (sf) on the Class E Notes (together, with the Class A-1 Notes, the Secured Notes) issued by BlackRock IX CLO, pursuant to the Note Purchase and Security Agreement (NPSA) dated as of August 30, 2019, among the Issuer; U.S. Bank National Association (rated AA (high) with a Negative trend by DBRS Morningstar) as the Collateral Agent, Custodian, Document Custodian, Collateral Administrator, Information Agent, and Note Agent; and the Purchasers referred to therein.

The provisional rating on the Class A-1 Notes and the rating on the Class A-2 Notes address the timely payment of interest (excluding the additional interest payable at the Post-Default Rate, as defined in the NPSA referred to above) and the ultimate payment of principal on or before the Stated Maturity of August 30, 2029. The ratings on the Class B, C, D, and E Notes address the ultimate payment of interest (excluding the additional interest payable at the Post-Default Rate, as defined in the NPSA referred to above) and the ultimate payment of principal on or before the Stated Maturity of August 30, 2029.

The provisional rating on the Combination Notes addresses the ultimate repayment of the Combination Note Rated Principal Balance (which is equal to the Commitment amount for the Combination Notes) on or before the Stated Maturity of August 30, 2029. The Combination Notes have no stated coupon. The Components of the Combination Notes include portions of the Class A-2, B, C, D, and E Notes and the Subordinated Notes (or equity) of the Issuer.

All interest and principal amounts paid on the Secured Notes and any distributions made to the Subordinated Notes are the only sources of payment for the Combination Notes. All payments made on the Component Notes (whether interest, principal, or otherwise) to the Combination Notes shall reduce the Combination Note Rated Principal Balance. The Combination Notes shall remain outstanding until the earlier of (1) the payment in full and redemption of each Component and (2) the Stated Maturity of each Component.

As of the Closing Date and this confirmation date, DBRS Morningstar’s ratings on the Class A-1 Notes and Combination Notes are provisional. The provisional ratings reflect the fact that the effectiveness of the Class A-1 Notes and Combination Notes are subject to certain conditions after the Closing Date, such as a drawing order. DBRS Morningstar expects the Combination Notes to be funded in tandem with, and in proportion to, each Underlying Class but the Class A-1 Notes and Combination Notes to not become effective until each of the Subordinated Notes and other Secured Notes are funded in reverse-sequential order. The finalization of the provisional ratings on the Class A-1 Notes and Combination Notes will be subject to satisfaction of certain conditions, as specified in the NPSA, including, but not limited to, the remaining unfunded commitments of the Class A-2, B, C, D, and E Notes being reduced to zero. The provisional ratings on the Class A-1 Notes and Combination Notes may not be finalized if the other Secured Notes fail to be fully drawn.

The principal methodology used to rate the Secured Notes and Combination Notes is “Rating CLOs and CDOs of Large Corporate Credit,” which can be found on dbrsmorningstar.com under Methodologies & Criteria. DBRS Morningstar stressed the Combination Notes by applying the BBB (low) stress scenario under the “Rating CLOs and CDOs of Large Corporate Credit” methodology to the loans securing the Component Notes.

The Secured Notes and Combination Notes will be collateralized primarily by a portfolio of U.S. middle-market corporate loans. The Issuer will be managed by BlackRock Capital Investment Advisors, LLC (BCIA), which is a wholly owned subsidiary of BlackRock, Inc. DBRS Morningstar considers BCIA to be an acceptable collateralized loan obligation (CLO) manager.

The ratings reflect the following:

(1) The NPSA dated as of August 30, 2019;
(2) The integrity of the transaction structure;
(3) DBRS Morningstar’s assessment of the portfolio quality;
(4) Adequate credit enhancement to withstand projected collateral loss rates under various cash flow stress scenarios; and
(5) DBRS Morningstar’s assessment of the origination, servicing, and CLO management capabilities of BCIA.

To assess portfolio credit quality, DBRS Morningstar provides a credit estimate or internal assessment for each nonfinancial corporate obligor in the portfolio that DBRS Morningstar doesn’t already rate. Credit estimates are not ratings; rather, they represent a model-driven default probability for each obligor that help when rating a facility.

As the Coronavirus Disease (COVID-19) spread around the world, certain countries imposed quarantines and lockdowns, including the United States, which accounts for more than one fourth of confirmed cases worldwide. The coronavirus pandemic has negatively affected not only the economies of the nations most afflicted, but also the overall global economy with diminished demand for goods and services as well as disrupted supply chains. The effects of the pandemic may result in deteriorated financial conditions for many companies and obligors, some of which will experience the effects of such negative economic trends more than others. At the same time, governments and central banks in multiple regions, including the United States and Europe, have taken significant measures to mitigate the economic fallout from the coronavirus pandemic.

For CLOs, DBRS Morningstar ran an additional higher default stress on the weighted-average (WA) DBRS Morningstar Risk Score of the current collateral obligation pool and compared the stressed WA Risk Score with the Maximum DBRS Morningstar Risk Scores allowed in the Collateral Quality Matrix. DBRS Morningstar observed that the Collateral Quality Matrix contained sufficient rows and columns that would allow for higher stressed DBRS Morningstar Risk Scores and therefore a higher default probability on the collateral pool, while still remaining in compliance with the other Collateral Quality Tests, such as WA Spread and Diversity Score. The results of this stress indicate that the Secured Notes and Combination Notes can withstand an additional higher default stress commensurate with a moderate-scenario impact of the coronavirus.

While DBRS Morningstar expects no impact on the outstanding ratings at this time, the coronavirus has affected the manager’s ability to originate assets in the current market to ramp up the underlying collateral pool. The provisional rating on the Combination Notes remains sensitive to timing of cash flows that could be negatively affected from slower asset origination and ramp-up versus initial projections because of the coronavirus. DBRS Morningstar will continue to monitor the transaction for satisfaction of the ramp-up conditions necessary to finalize the provisional ratings and will take additional rating actions, if necessary.

For more information regarding DBRS Morningstar’s simplified set of macroeconomic scenarios for select economies related to the coronavirus, please see its April 16, 2020, commentary “Global Macroeconomic Scenarios: Implications for Credit Ratings” at https://www.dbrsmorningstar.com/research/359679; its April 22, 2020, commentary “Global Macroeconomic Scenarios: Application to Credit Ratings” at https://www.dbrsmorningstar.com/research/359903; its July 22, 2020, updated commentary, “Global Macroeconomic Scenarios: July Update” at https://www.dbrsmorningstar.com/research/364318; and its September 10, 2020, updated commentary “DBRS Morningstar: Global Macroeconomic Scenarios: September Update” at https://www.dbrsmorningstar.com/research/366543 copies of which have been included with this correspondence.

For more information regarding DBRS Morningstar’s additional adjustment for select industries related to the coronavirus, please see its May 18, 2020, commentary, “CLO Risk Exposure to the Coronavirus Disease (COVID-19).”

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
The principal methodology is Rating CLOs and CDOs of Large Corporate Credit (July 21, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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 (DBRS Morningstar) 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 Morningstar 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, CFA, Assistant Vice President, U.S. Structured Credit
Rating Committee Chair: Jerry van Koolbergen, Managing Director, Head of U.S. Structured Credit
Initial Rating Date: September 3, 2019.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277

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