DBRS Morningstar Confirms Ratings on Loans and Notes Issued by BlackRock Elbert CLO V, LLC

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the Class A-R Loans at AA (sf) (the Loans), the Class B Notes at A (low) (sf), and the Class C Notes at BBB (low) (sf) (together, the Secured Notes) issued by BlackRock Elbert CLO V, LLC.

DBRS Morningstar assigned the rating on the Loans pursuant to the Credit Agreement dated as of August 9, 2019, among BlackRock Elbert CLO V, LLC as the Borrower; Natixis, New York Branch as the Administrative Agent; U.S. Bank National Association (rated AA (high) with a Negative trend by DBRS Morningstar) as the Collateral Agent, Note Agent, Information Agent, Collateral Administrator, and Custodian; and the Lenders referred to therein. DBRS Morningstar assigned the ratings on the Secured Notes pursuant to the Note Purchase Agreement dated as of August 9, 2019, among BlackRock Elbert CLO V, LLC as the Issuer; U.S. Bank National Association as the Collateral Agent and Note Agent; and the Purchasers referred to therein.

The rating on the Loans addresses the timely payment of interest (excluding Capped Amounts and the additional 2% of interest payable at the Post-Default Rate, as defined in the Credit Agreement) and the ultimate payment of principal on or before the Stated Maturity (as defined in the Credit Agreement). The ratings on the Secured Notes address the ultimate payment of interest (excluding the additional 2% of interest payable at the Post-Default Rate, as defined in the Credit Agreement) and the ultimate payment of principal on or before the Stated Maturity (as defined in the Credit Agreement).

The Loans and Secured Notes issued by BlackRock Elbert CLO V, LLC are collateralized primarily by a portfolio of U.S. middle-market corporate loans. BlackRock Elbert CLO V, LLC is 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 Credit Agreement dated as of August 9, 2019;
(2) The Note Purchase Agreement dated as of August 9, 2019;
(3) The integrity of the transaction structure;
(4) DBRS Morningstar’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 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.

Under the Credit Agreement, upon the occurrence and during the continuance of an event of default (EOD), the Controlling Parties or the Administrative Agent (acting at the direction of the Controlling Parties, as defined in the Credit Agreement) may direct the Collateral Agent to sell or otherwise dispose of the Collateral as a remedy, which could subject the Loans to additional downgrade risk and/or default risk and/or could disadvantage the Class B and C Noteholders. These EODs also include a Senior Overcollateralization Ratio less than 115.0% for 10 business days or less than 105.0% for five business days.

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 complying with the other Collateral Quality Tests, such as WA Spread and Diversity Score. The results of this stress indicate that the rated Loans and Notes can withstand an additional higher default stress commensurate with a moderate-scenario impact of the coronavirus.

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: August 12, 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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https://www.dbrsmorningstar.com/research/364310/rating-clos-and-cdos-of-large-corporate-credit
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