DBRS Morningstar Upgrades Rating on the Class C Deferrable Notes and Confirms Rating on the Liquidity Facility of MCA Fund II Holding LLC

DBRS, Inc. (DBRS Morningstar) upgraded its rating on the Class C Deferrable Notes issued by MCA Fund II Holding LLC pursuant to the Indenture dated as of June 28, 2017, between MCA Fund II Holding LLC, as Issuer, and Wells Fargo Bank, N.A. (rated AA with a Negative trend by DBRS Morningstar), as Trustee and Calculation Agent, to A (sf) from BB (sf).

DBRS Morningstar also confirmed its rating of A (sf) on the Liquidity Facility with MCA Fund II Holding LLC, as Issuer; Barclays Bank PLC (rated “A” with a Stable trend by DBRS Morningstar), as Liquidity Lender; and Wells Fargo Bank, N.A., as Trustee and Calculation Agent.

DBRS Morningstar also discontinued its ratings on the Class A Notes and Class B Notes due to repayment.

The rating confirmation of the Liquidity Facility addresses the timely payment of interest and the ultimate payment of principal on or before the Final Maturity Date (as defined in the Indenture referenced above). The rating upgrade of the Class C Deferrable Notes addresses the ultimate payment of interest and the ultimate payment of principal on or before the Final Maturity Date (as defined in the Indenture referenced above). The upgrade rating action is primarily a result of deleveraging of senior notes and an decrease in the loan-to-value ratio to the Class C Deferrable Notes, due to the portfolio performance. The Class A Notes and Class B Notes were paid off in full in accordance with their terms in February 2021 and May 2021, respectively. The Class C Deferrable Notes are expected to enter full turbo principal amortization in accordance with its terms.

The Class A Notes, the Class B Notes and the Class C Deferrable Notes (together, Notes) are backed by a portfolio of limited partnership interests in leveraged buyout, mezzanine debt, and venture capital private equity funds. Each class of Notes is able to withstand a percentage of tranche defaults from a Monte Carlo asset analysis commensurate with its respective rating.

The rating analysis reflects
(1) The indenture dated June 28, 2017, and the distribution date report as of May 2021.
(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.
(5) DBRS Morningstar’s assessment of the management capabilities of MEMBERS Capital Advisors, Inc. as Investment Manager.
(6) DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the Coronavirus Disease (COVID-19). DBRS Morningstar initially published its commentary “Global Macroeconomic Scenarios: Implications for Credit Ratings” (https://www.dbrsmorningstar.com/research/359679) on April 16, 2020, and updated its commentary “Global Macroeconomic Scenarios: Application to Credit Ratings” (https://www.dbrsmorningstar.com/research/359903) on April 22, 2020. The scenarios were last updated on March 17, 2021, (https://www.dbrsmorningstar.com/research/375376) and are reflected in DBRS Morningstar’s rating analysis.

As the coronavirus spread around the world, certain countries imposed quarantines and lockdowns, including the United States, which accounts for more than one-quarter of confirmed cases worldwide. The coronavirus pandemic has negatively 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. 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.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating U.S. Collateralized Fund Obligations Backed by Private Equity (November 1, 2018), 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.

DBRS Morningstar materially deviated from its predicative model when determining the ratings for the Class C Deferrable Notes and the Liquidity Facility. The rating actions taken are lower than those implied by the predicative model. The material deviations are warranted given that the Class C Deferrable Notes and the Liquidity Facility are exposed to counterparty risks in the form of future capital calls that are not fully captured in the model output.

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.

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