DBRS Morningstar Confirms Ratings on the Class A-1 Notes Issued by Portman Ridge Funding 2018-2 Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed its ratings of AAA (sf) on the Class A-1R-R Senior-Secured Revolving Floating-Rate Notes (the Class A-1R-R Notes) and on the Class A-1T-R Senior-Secured Floating-Rate Notes (the Class A-1T-R Notes; together with the Class A-1R-R Notes, the Class A-1 Notes) issued by Portman Ridge Funding 2018-2 Ltd. (the Issuer or Portman Ridge CLO; formerly known as (fka) Garrison Funding 2018-2 Ltd.) pursuant to the Indenture dated as of October 18, 2018, among the Issuer; Portman Ridge Funding 2018-2 LLC (fka Garrison Funding 2018-2 LLC) as Co-Issuer; and Deutsche Bank Trust Company Americas as Trustee. DBRS Morningstar notes that the Issuer’s name was changed to Portman Ridge Funding 2018-2 Ltd. from Garrison Funding 2018-2 Ltd. pursuant to the Fourth Supplemental Indenture dated as of September 17, 2021.

The rating on the Class A-1R-R Notes addresses the timely payment of interest up to the Interest Rate Cap (as defined in the Indenture) and the ultimate payment of principal on or before the Stated Maturity (as defined in the Indenture). The rating on the Class A-1R-R Notes does not address the payment of any Class A-1R Note Additional Amount (as defined in the Indenture). The rating on the Class A-1T-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).

The Class A-1 Notes issued by Portman Ridge CLO are collateralized primarily by a portfolio of U.S. senior-secured middle-market corporate loans and will be managed by Garrison Capital Inc. (GCI) as Collateral Manager and Garrison Capital Advisers LLC (GCA) as Sub-Collateral Manager. Both the Collateral Manager and the Sub-Collateral Manager are affiliates of Garrison Investment Group LP (Garrison).

On June 24, 2020, GCI announced its planned merger with and into Portman Ridge Finance Corporation (PRFC), a business development company managed by Sierra Crest Investment Management LLC, an affiliate of BC Partners Advisors L.P. (BC Partners) and LibreMax Capital LLC. With the merger, the Collateral Manager will be PRFC and the Sub Collateral Manager will be Sierra Crest Investment Management (SCIM). DBRS Morningstar has contemplated this planned merger in the rating analysis.

The ratings reflect the following:

(1) The Indenture dated as of October 18, 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 (CLO) management capabilities of GCI, GCA, Garrison, Portman Ridge Finance Corporation, SCIM, and BC Partners. DBRS Morningstar considers BC Partners an acceptable CLO manager.

The Events of Default (EOD) contain an EOD Overcollateralization Ratio trigger; however, the Assets securing the Secured Notes may not be sold unless the Trustee determines that the liquidation proceeds would be sufficient to repay all interest and principal on the Secured Notes, or Holders of at least a majority of each Class of Secured Notes (voting separately by Class) consent to and direct the sale and liquidation of the Assets (all capitalized terms as defined in the Indenture).

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 the facility.

The Coronavirus Disease (COVID-19) pandemic and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may continue to increase in the coming months for many CLO transactions. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus.

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

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 CLOs and CDOs of Large Corporate Credit (February 8, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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 for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:

The last rating action on this transaction took place on October 21, 2020.

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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

Lead Analyst: Quan Yoon
Rating Committee Chair: Jerry van Koolbergen, Managing Director, Head of U.S. Structured Credit
Initial Rating Date: September 21, 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 DBRS Morningstar CLO Asset Model Version 2.2.3 (February 8, 2021)
https://www.dbrsmorningstar.com/research/373423/rating-clos-and-cdos-of-large-corporate-credit

-- Cash Flow Assumptions for Corporate Credit Securitizations (February 8, 2021)
https://www.dbrsmorningstar.com/research/373422/cash-flow-assumptions-for-corporate-credit-securitizations

-- Operational Risk Assessment for Collateralized Loan Obligation (CLO) and Collateralized Debt Obligation (CDO) Managers of Large Corporate Credits (September 20, 2021)
https://www.dbrsmorningstar.com/research/384628/operational-risk-assessment-for-collateralized-loan-obligation-clo-and-collateralized-debt-obligation-cdo-managers-of-large-corporate-credits

-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 10, 2021)
https://www.dbrsmorningstar.com/research/379958/interest-rate-stresses-for-us-structured-finance-transactions

-- Legal Criteria for U.S. Structured Finance (December 21, 2020)
https://www.dbrsmorningstar.com/research/371685/legal-criteria-for-us-structured-finance