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

DBRS, Inc. (DBRS Morningstar) confirmed its 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.

Rating Rationale

The rating action is a result of the annual surveillance review of the transaction, which has also reflected the end of the Reinvestment Period on October 20, 2022. DBRS Morningstar confirmed the rating on the Class A-R Notes as the current transaction performance is within DBRS Morningstar’s expectation. The Stated Maturity of the Class A-R Notes is October 20, 2030.

In its analysis, DBRS Morningstar considered the following aspects of the transaction:

(1) The transaction’s capital structure and the form and sufficiency of available credit enhancement.
(2) Relevant credit enhancement in the form of subordination and excess spread.
(3) The ability of the Class A-R Notes to withstand projected collateral loss rates under various cash flow stress scenarios.
(4) The credit quality of the underlying collateral.
(5) DBRS Morningstar’s assessment of the origination, servicing, and CLO management capabilities of Nuveen Alternatives Advisors LLC as Collateral Manager and Churchill Asset Management LLC as Sub-Advisor.
(6) The legal structure as well as legal opinions addressing certain matters of the Borrower and the consistency with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance” methodology.

The transaction Reinvestment Period ended on October 20, 2022. As a result, DBRS Morningstar used the actual portfolio to analyze the current performance of the transaction. The reported levels of certain Collateral Quality Tests that demonstrate the current characteristics of the portfolio are presented below.

(1) Minimum Floating Spread: 4.99%
(2) Minimum Weighted Average DBRS Recovery Rate: 50.76%
(3) Maximum DBRS Risk Score: 27.99%
(4) DBRS Diversity: 50
(5) Weighted-Average Life: 3.98

The Coverage Tests and triggers that DBRS Morningstar modeled during its analysis are presented below.

(1) Class A/B Overcollateralization Test: 138.10%
(2) Class C Overcollateralization Test: 125.80%
(3) Class D Overcollateralization Test: 116.70%
(4) Class E Overcollateralization Test: 109.10%
(5) Class A/B Interest Coverage Test: 120.00%
(6) Class C Interest Coverage Test: 110.00%
(7) Class D Interest Coverage Test: 105.00%

Some particular strengths of the transaction are (1) collateral quality that consists of at least 95% senior-secured Middle-Market loans and (2) the strong diversification of underlying obligations. Some challenges were identified: (1) up to 15% of the portfolio pool may consist of Delayed Drawdowns and Revolving Collateral Obligations and (2) the underlying collateral portfolio may be insufficient to redeem the loans in an Event of Default.

The transaction is performing according to the contractual requirements of the Indenture. As of October 7, 2022, the Borrower is in compliance with all Coverage and Collateral Quality Tests, as well as the Concentration Limitation tests. Approximately $10.17 million defaulted obligations were registered in the underlying portfolio as of October 7, 2022. The overcollateralization test would still pass with the defaulted obligations carried at zero value.

DBRS Morningstar modeled the transaction using its proprietary cash flow engine and the DBRS Morningstar CLO Asset model. Model-based analysis produced satisfactory results that supported the above assigned ratings on the Class A-R Notes.

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 helps when rating a facility.

The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: September 2022 Update,” published on September 19, 2022 (https://www.dbrsmorningstar.com/research/402907). These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.

For more information regarding DBRS Morningstar’s additional adjustment for select industries related to the Coronavirus Disease (COVID-19), please see its May 18, 2020, commentary, “CLO Risk Exposure to the Coronavirus Disease (COVID-19)” at https://www.dbrsmorningstar.com/research/361112.

There were no Environmental/Social/Governance (ESG) factors that had a significant or relevant effect on the credit analysis.

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/396929 (May 17, 2022).

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

The principal methodologies are Rating CLOs and CDOs of Large Corporate Credit (January 26, 2022) and Cash Flow Assumptions for Corporate Credit Securitizations (January 26, 2022), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereigns group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts with the baseline scenarios set forth in the following report:
https://www.dbrsmorningstar.com/research/402907.

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:

Each of the principal asset class methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision, Specifically, the “Rating CLOs and CDOs of Large Corporate Credit” (January 26, 2022) methodology provides a general overview of the entire rating process and details on asset analysis. The “Cash Flow Assumptions for Corporate Credit Securitization” (January 26, 2022) methodology outlines the assumptions and analytical approach used in cash flow analysis.

The last rating action on this transaction took place on November 4, 2021.

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, CFA, Vice President, U.S. Structured Credit
Rating Committee Chair: Glen Leppert, Senior Vice President, U.S. Structured Credit
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 2.2.3.1 (January 26, 2022),
https://www.dbrsmorningstar.com/research/391226

-- Cash Flow Assumptions for Corporate Credit Securitizations (January 26, 2022),
https://www.dbrsmorningstar.com/research/391225

-- Operational Risk Assessment for Collateralized Loan Obligation (CLO) and Collateralized Debt Obligation (CDO) Managers of Large Corporate Credits (September 23, 2022),
https://www.dbrsmorningstar.com/research/403042

-- Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022),
https://www.dbrsmorningstar.com/research/402153

-- Legal Criteria for U.S. Structured Finance (June 15, 2022),
https://www.dbrsmorningstar.com/research/398418