DBRS Morningstar Confirms Ratings on the Secured Notes of BlackRock DLF IX 2020-1 CLO, LLC

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the following classes of Notes (together, the Secured Notes) issued by BlackRock DLF IX 2020-1 CLO, LLC, pursuant to the Note Purchase and Security Agreement (the NPSA) dated as of July 21, 2020, among BlackRock DLF IX 2020-1 CLO, LLC, as Issuer, U.S. Bank National Association, as Collateral Agent, Custodian, Document Custodian, Collateral Administrator, Information Agent, and Note Agent, and the Purchasers referred to therein:

-- Class A-1 Notes at AAA (sf)
-- Class A-2 Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)
-- Class C Notes at A (high) (sf)
-- Class D Notes at BBB (high) (sf)
-- Class E Notes at BB (high) (sf)
-- Class W Notes at B (sf)

The ratings on the Class A-1 and A-2 Notes address the timely payment of interest (excluding the additional interest payable at the Post-Default Rate, as defined in the NPSA) and the ultimate payment of principal on or before the Stated Maturity of July 21, 2030.

The ratings on the Class B Notes, Class C Notes, Class D Notes, Class E Notes, and Class W Notes address the ultimate payment of interest (excluding the additional interest payable at the Post-Default Rate, as defined in the NPSA) and the ultimate payment of principal on or before the Stated Maturity of July 21, 2030. The Class W Notes have a fixed-rate coupon that is lower than the spread/coupon of some of the more-senior Secured Notes. The Class W Notes also benefit from the Class W Note Payment Amount, which allows for principal repayment of the Class W Notes with collateral interest proceeds, in accordance with the Priority of Payments.

CREDIT RATING RATIONALE/DESCRIPTION
The rating confirmations are being provided in relation to the execution of the Notice of Libor Replacement (the Notice), dated as of June 29, 2023, which states that commencing on the first Business Day of the Interest Period immediately following the LIBOR Reporting Cessation Date and continuing thereafter (unless and until a new Designated Reference Rate comes into effect after the date hereof pursuant to the terms of the NPSA), the LIBOR Replacement Rate shall be equal to the sum of the Term SOFR Reference Rate plus a reference rate modifier of 0.26161%. The transaction is performing within DBRS Morningstar’s expectation. The Reinvestment Period for the transaction ends on July 21, 2024. The Stated Maturity is July 21, 2030.

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

-- The NPSA.
-- The Notice.
-- The integrity of the transaction structure.
-- DBRS Morningstar’s assessment of the portfolio quality.
-- Adequate credit enhancement to withstand DBRS Morningstar’s projected collateral loss rates under various cash flow-stress scenarios.
-- DBRS Morningstar’s assessment of the origination, servicing, and CLO management capabilities of BlackRock Capital Investment Advisors, LLC.

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). The following metrics are selected accordingly from the applicable row of the CQM specified by the Investment Manager: DBRS Morningstar Risk Score, Advance Rate, Weighted Average Spread, and Recovery Rates. Overcollateralization (OC) Ratios. DBRS Morningstar analyzed each structural configuration as a unique transaction. The Coverage Tests and triggers as well as the Collateral Quality Tests that DBRS Morningstar modelled during its analysis are presented below:

Collateral Quality Tests
Minimum Weighted Average Spread: Subject to Collateral Quality Matrix; 5.75%
Minimum Weighted Average Coupon: Subject to Collateral Quality Matrix; 6.00%
Maximum Weighted Average Life: 4.5 years
Maximum Risk Score: Subject to Collateral Quality Matrix; 38.00
Minimum Weighted Average Recovery Rate Test: Subject to Collateral Quality Matrix; 47.5%
Minimum Diversity Score Test; Subject to Collateral Quality Matrix; 30

Coverage Tests
Class A Overcollateralization Ratio: 143.97%
Class B Overcollateralization Ratio: 134.18%
Class C Overcollateralization Ratio: 127.71%
Class D Overcollateralization Ratio: 120.03%
Class E Overcollateralization Ratio: 117.55%

Class A Interest Coverage: 150.00%
Class B Interest Coverage: 140.00%
Class C Interest Coverage: 130.00%
Class D Interest Coverage: 110.00%
Class E Interest Coverage: 110.00%

The transaction is performing according to the contractual requirements of the NPSA. As of May 8, 2023, the Issuer is in compliance with all Coverage and Collateral Quality Tests, as well as the Concentration Limitation tests.

Some particular strengths of the transaction are (1) the collateral quality, which consists mostly of senior-secured floating-rate Middle Market loans and (2) the adequate diversification of the portfolio of collateral obligations (the current DScore of 42 compared with test level of 30). Some challenges were identified as follows: (1) the weighted average credit quality of the underlying obligors may fall below investment grade and may not have public ratings and (2) the underlying collateral portfolio may be insufficient to redeem the Secured Notes in an Event of Default.

DBRS Morningstar modeled the transaction 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.

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 Secured Notes.

DBRS Morningstar’s credit ratings on the Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations include the interest at the Applicable Rate (excluding any additional interest payable at the Post-Default Rate), Deferred Interest, and the principal amounts for each class of Secured Notes.

DBRS Morningstar’s credit ratings do not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, the ratings on the Secured Notes do not address the additional interest payable at the Post-Default Rate, as defined in the NPSA.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

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.

The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: June 2023 Update,” published on June 30, 2023 (https://www.dbrsmorningstar.com/research/416703). These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse COVID-19 pandemic scenarios, which were first published in April 2020.

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/416784 (July 4, 2023).

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

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.

The principal methodologies applicable to the credit ratings are Rating CLOs and CDOs of Large Corporate Credit (February 7, 2023; www.dbrsmorningstar.com/research/409498) and Cash Flow Assumptions for Corporate Credit Securitizations (February 7, 2023; www.dbrsmorningstar.com/research/409499).

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

This credit 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 credit ratings:

Each of the principal asset class methodologies employed in the analysis addressed one or more particular risks or aspects of the credit rating and were factored into the credit rating decision, Specifically, the Rating CLOs and CDOs of Large Corporate Credit (February 7, 2023) methodology provides a general overview of the entire rating process and details on asset analysis. The Cash Flow Assumptions for Corporate Credit Securitization (February 7, 2023) methodology outlines the assumptions and analytical approach used in cash flow analysis.

The last credit rating action on this transaction took place on August 5, 2022.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication/.
For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

Lead Analyst: Joseph Priolo, Senior Vice President, Credit Ratings, US Structured Credit
Rating Committee Chair: Glen Leppert, Senior Vice President, Credit Ratings, US Structured Credit
Initial Rating Date: July 24, 2020

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Rating CLOs and CDOs of Large Corporate Credit and DBRS Morningstar CLO Asset Model Version 2.2.3.1 (February 7, 2023), www.dbrsmorningstar.com/research/409498

-- Cash Flow Assumptions for Corporate Credit Securitizations (February 7, 2023),
www.dbrsmorningstar.com/research/409499

-- 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/415687

-- Legal Criteria for U.S. Structured Finance (December 7, 2022), https://www.dbrsmorningstar.com/research/407008

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