DBRS Morningstar Places the Class A-1 Notes Issued by Ares XLVI CLO Ltd. Under Review With Developing Implications

DBRS, Inc. (DBRS Morningstar) placed its AAA (sf) rating on the Class A-1 Notes (the Notes) issued by Ares XLVI CLO Ltd. Under Review with Developing Implications.

The Notes were issued pursuant to the Indenture, dated as of January 12, 2018, among Ares XLVI CLO Ltd. as Issuer and U.S. Bank National Association (rated AA (high) with a Negative trend by DBRS Morningstar) as Trustee. The Notes are collateralized primarily by a portfolio of U.S. senior secured floating-rate broadly syndicated corporate loans. The collateralized loan obligation (CLO) is managed by Ares CLO Management LLC (Ares), an affiliate of Ares Management Corporation, as Asset Manager. DBRS Morningstar considers Ares to be an acceptable CLO manager.

The rating on the Notes addresses the timely payment of interest and the ultimate payment of principal in accordance with the terms of the Indenture referred to above.

CREDIT RATING RATIONALE/DESCRIPTION
The rating action is a result of a benchmark replacement event that occurred as of July 3, 2023, pursuant to the Indenture referred to above. DBRS Morningstar’s rating on the Notes is being placed Under Review with Developing Implications until its review of the transaction is complete.

DBRS Morningstar notes that a legal analysis, which included but was not limited to legal opinions and various transaction documents, was performed by Morningstar Credit Ratings, which also engaged external counsel as part of its process of assigning new ratings to CLOs on or prior to the closing date. DBRS Morningstar did not perform additional legal analysis for the purpose of assigning or monitoring ratings to the Notes, unless otherwise indicated in this press release.

DBRS Morningstar’s credit rating on the Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the principal and interest due on the Notes.

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 pandemic, please see its May 18, 2020, commentary, “CLO Risk Exposure to the Coronavirus Disease (COVID-19)” at 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 Coronavirus Disease (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 https://www.dbrsmorningstar.com/research/416784 (July 4, 2023).

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

The principal methodologies applicable to the credit rating 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 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 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.

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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 (June 9, 2023), 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].