DBRS Morningstar Confirms Rating on the Class A-R Notes Issued by TIAA Churchill Middle Market CLO I Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed the rating of AAA (sf) on the Class A-R Senior Secured Floating-Rate Notes (the Class A-R Notes) issued by TIAA Churchill Middle Market CLO I Ltd. and TIAA Churchill Middle Market CLO I LLC (together, the Co-Issuers) pursuant to the First Supplemental Indenture (the Indenture) dated as of October 22, 2018, among TIAA Churchill Middle Market CLO I Ltd. as Issuer; TIAA Churchill Middle Market CLO I LLC as Co-Issuer; and The Bank of New York Mellon Trust Company, N.A. (rated AA (high) with a Stable trend by DBRS Morningstar) as Trustee.

The rating on the Class A-R Notes addresses the timely payment of interest and the ultimate payment of principal on or before the Stated Maturity (as defined in the Indenture referenced above).

The Class A-R Notes issued by the Co-Issuers are collateralized primarily by a portfolio of U.S. middle-market corporate loans and will be managed by Nuveen Alternatives Advisors LLC. Additionally, Churchill Asset Management LLC will act as Sub-Advisor for this transaction. Both the Collateral Manager and the Sub-Advisor are subsidiaries of Teachers Insurance and Annuity Association of America.

The rating reflects the following:

(1) The First Supplemental Indenture dated as of October 22, 2018;
(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 collateralized loan obligation management capabilities of Nuveen Alternatives Advisors LLC as Collateral Manager and Churchill Asset Management LLC as Sub-Advisor.

To assess portfolio credit quality, DBRS Morningstar provides a credit estimate or internal assessment for each nonfinancial corporate obligor in the portfolio not rated by DBRS Morningstar. Credit estimates are not ratings; rather, they represent a model-driven default probability for each obligor that is used in assigning a rating to a facility.

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

In conjunction with DBRS Morningstar’s commentary “Global Macroeconomic Scenarios: Implications for Credit Ratings” published on April 16, 2020, and updated in its “Global Macroeconomic Scenarios: June Update” commentary on June 1, 2020, and “Global Macroeconomic Scenarios: September Update” on September 10, 2020, DBRS Morningstar further considers additional adjustments to assumptions for the collateralized loan obligation (CLO) asset class in the moderate economic scenario outlined in the commentaries. The adjustments include a higher default assumption for the WA credit quality of the current collateral obligation portfolio. To derive the higher default assumption, DBRS Morningstar notches ratings for obligors in certain industries and obligors at various rating levels based on their perceived exposure to the adverse disruptions caused by the coronavirus pandemic. Considering a higher default assumption would result in losses that exceed the original default expectations for the affected classes of notes. DBRS Morningstar may adjust the default expectations further if the duration or severity of the adverse disruptions caused by the coronavirus change.

For CLOs, DBRS Morningstar ran an additional higher default adjustment on the weighted-average DBRS Morningstar Risk Score of the current collateral obligation pool, and this adjusted modelling pool was run through the DBRS Morningstar CLO Asset Model to generate a stressed default rate. DBRS Morningstar then performed a cash flow model analysis to determine the breakeven default rate for the rated debt. The breakeven default rate is computed over nine combinations of default timing and interest rate stresses. The breakeven default rate must exceed the lifetime total default rate generated by the DBRS Morningstar CLO Asset Model for the debt in order to achieve the rating. The results of this adjustment indicate that the Class A-R Notes can withstand an additional higher default stress commensurate with a moderate-scenario impact of the coronavirus pandemic.

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.

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)” at https://www.dbrsmorningstar.com/research/361112.

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.

DBRS Morningstar notes that this press release was amended on December 3, 2020, to include the CLO Asset Model. The amendment was minor and would not impact the understanding of the reader.

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

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:

The last rating action on this transaction took place on October 23, 2019.

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
Rating Committee Chair: Jerry van Koolbergen, Managing Director
Initial Rating Date: October 5, 2018

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

DBRS, Inc.
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New York, NY 10005 USA
Tel. +1 212 806-3277

-- Rating CLOs and CDOs of Large Corporate Credit and CLO Asset Model Version 2.2.3 (July 21, 2020) https://www.dbrsmorningstar.com/research/364310/rating-clos-and-cdos-of-large-corporate-credit

-- Operational Risk Assessment for Collateralized Loan Obligation (CLO) and Collateralized Debt Obligation (CDO) Managers of Large Corporate Credits (September 22, 2020)
https://www.dbrsmorningstar.com/research/366977/operational-risk-assessment-for-collateralized-loan-obligation-clo-and-collateralized-debt-obligation-cdo-managers-of-large-corporate-credits

-- Cash Flow Assumptions for Corporate Credit Securitizations (July 21, 2020)
https://www.dbrsmorningstar.com/research/364311/cash-flow-assumptions-for-corporate-credit-securitizations

-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 4, 2020)
https://www.dbrsmorningstar.com/research/361961/interest-rate-stresses-for-us-structured-finance-transactions

-- Legal Criteria for U.S. Structured Finance (January 21, 2020)
https://www.dbrsmorningstar.com/research/355719/legal-criteria-for-us-structured-finance