DBRS Morningstar Assigns and Upgrades Provisional Ratings on the Loans Issued by Whitney Funding, LLC

DBRS, Inc. (DBRS Morningstar) assigned a provisional rating of B (low) (sf) to the Class E Loan and upgraded the following provisional ratings on the Class A Loan, the Class B Loan, the Class C Loan, and the Class D Loan (collectively, the Loans) issued by Whitney Funding, LLC, pursuant to the terms of the Second Amended and Restated Loan Agreement (the Loan Agreement) dated as of December 15, 2022, among Whitney Funding, LLC as Borrower; Delaware Life Insurance Company as a Lender and the Managing Lender; and Alter Domus (US) LLC as the Paying Agent and Calculation Agent:

-- Class A Loan upgraded to AA (low) (sf) from A (high) (sf)
-- Class B Loan upgraded to A (low) (sf) from BBB (low) (sf)
-- Class C Loan upgraded to BBB (sf) from BB (sf)
-- Class D Loan upgraded to BB (low) (sf) from B (low) (sf)

The provisional rating on the Class A Loan addresses the timely payment of interest and the ultimate payment of principal on or before the Legal Final Maturity Date of December 18, 2034. The provisional ratings on the Class B Loan, Class C Loan, Class D Loan, and Class E Loan address the ultimate payment of interest and the ultimate payment of principal on or before the Legal Final Maturity Date of December 18, 2034.

A provisional rating is not a final rating with respect to the above-mentioned Loans and may change or be different than the final rating assigned or may be discontinued. The assignment of final ratings on the above-mentioned Loans is subject to receipt by DBRS Morningstar of all data and/or information and final documentation that DBRS Morningstar deems necessary to finalize the ratings, including, for these Loans: completion of the funding period, up to the Maximum Commitment Amount (as defined in the Loan Agreement) and satisfaction of the Portfolio Criteria (as defined in the Loan Agreement). Failure by the Borrower to complete the above conditions, as described in the Loan Agreement, may result in the provisional ratings not being finalized or being finalized at different ratings than the provisional ratings assigned.

Should a Distribution Event (as defined in the Loan Agreement) occur, the Designated Lender (as defined in the Loan Agreement) shall have the right at any time, upon written notice to the Borrower, the Paying Agent, and the Rating Agency, to instruct the Paying Agent to distribute the Borrower’s assets to the Designated Lenders. In consideration therefor, the Aggregate Loan Balance of the Loans will be reduced to zero and all obligations of the Borrower (except those that expressly survive the termination of the Loan Agreement) shall be deemed satisfied.

The Borrower is a bankruptcy-remote special-purpose vehicle set up by Delaware Life Insurance Company as the Managing Lender and Servicer. At the time of closing, DBRS Morningstar understands that Delaware Life Insurance Company is the sole Lender to the Borrower (though Delaware Life Insurance Company may sell or assign the Loans following the closing). As such, as of this date, certain key parties to this transaction are related parties. In addition, Delaware Life Insurance Company engaged DBRS Morningstar for the determination of the credit ratings on the Loans.

The Loans issued by the Borrower are collateralized primarily by a portfolio of U.S. middle-market corporate loans. Whitney Funding, LLC will be managed by Delaware Life Insurance Company. DBRS Morningstar considers Delaware Life Insurance Company to be an acceptable collateralized loan obligation (CLO) manager.

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

(1) The execution of the Second Amended and Restated Loan Agreement, dated as of December 15, 2022.
(2) The transaction’s capital structure and the form and sufficiency of available credit enhancement.
(3) Relevant credit enhancement in the form of subordination and excess spread.
(4) The ability of the Loans to withstand projected collateral loss rates under various cash flow stress scenarios.
(5) The credit quality of the underlying collateral and the ability of the transaction to reinvest Principal Proceeds into new Collateral Obligations, subject to the Eligibility Criteria, which include testing the Concentration Limitations, Collateral Quality Tests, and Coverage Tests.
(6) DBRS Morningstar’s assessment of the origination, servicing, and CLO management capabilities of Delaware Life Insurance Company.
(7) 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 Scheduled Reinvestment Period Termination Date is three years following the DBRS Final Ratings Effective Date (as defined in the Loan Agreement). The Legal Final Maturity Date is December 18, 2034.

The transaction has a dynamic structural configuration that permits variations of certain asset metrics via a selection of an applicable row from a collateral quality matrix (the CQM, as defined in Schedule 5 of the Loan Agreement). Depending on a given Maximum Average Life, the following metrics are selected accordingly from the applicable row of the CQM: Row Spread Level and Maximum DBRS Morningstar Risk Score Test. DBRS Morningstar analyzed each structural configuration as a unique transaction, and all configurations (matrix rows) passed the applicable DBRS Morningstar rating stress levels. The Coverage Tests and triggers as well as the Collateral Quality Tests that DBRS Morningstar modeled during its analysis are presented below.

(1) Class A Loan Overcollateralization Test: 137.06%
(2) Class B Loan Overcollateralization Test: 125.33%
(3) Class C Loan Overcollateralization Test: 119.00%
(4) Class D Loan Overcollateralization Test: 110.28%
(5) Class E Loan Overcollateralization Test: 106.73%
(6) Maximum Weighted-Average Life Test: Subject to CQM; 5.5
(7) Row Spread Level: Subject to CQM; 5.25%
(8) Maximum DBRS Morningstar Risk Score Test: Subject to CQM; 35.0%
(9) Minimum Weighted-Average Coupon Test: 5.50%

Some particular strengths of the transaction are (1) the collateral quality, which will consist mostly of senior-secured middle-market loans; and (2) the expected adequate diversification of the portfolio of collateral obligations.

Some challenges were identified: (1) the expected weighted-average credit quality of the underlying obligors may fall below investment grade (per the CQM), and the majority may not have public ratings once purchased; and (2) the underlying collateral portfolio may be insufficient to redeem the Loans in an Event of Default.

DBRS Morningstar modeled the proposed amendment pursuant to the Second Amended and Restated Loan Agreement using the DBRS Morningstar CLO Asset Model and its proprietary cash flow engine, which incorporated assumptions regarding principal amortization, amount of interest generated, default timings, and recovery rates, among other credit considerations referenced in the DBRS Morningstar rating methodology “Cash Flow Assumptions for Corporate Credit Securitizations.” Model-based analysis produced satisfactory results, which supported the assignment of the provisional ratings on the Loans.

Considering the transaction structure, its legal aspects, and the results produced by the models, DBRS Morningstar assigned a provisional rating to the Class E Loan and upgraded the provisional ratings specified above on the Loans issued by Whitney Funding, LLC.

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 DBRS Morningstar uses when rating the Loans.

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, please see its May 18, 2020, commentary “CLO Risk Exposure to the Coronavirus Disease (COVID-19)” at https://www.dbrsmorningstar.com/research/361112.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance 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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

Notes:
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/384482.

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.

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

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