DBRS Morningstar Confirms Rating and Removes Under Review with Developing Implications on the Class A-R Notes Issued by TIAA Churchill Middle Market CLO I Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed its AAA (sf) rating and removed the Under Review with Developing Implications on the Class A-R Senior Secured Floating-Rate Notes (the Class A-R Notes) issued by TIAA Churchill Middle Market CLO I Ltd. (the Issuer) and TIAA Churchill Middle Market CLO I LLC (the Co-Issuer). The Class A-R Notes were issued pursuant to the Indenture dated September 1, 2016, 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 First Supplemental Indenture was executed on October 22, 2018, and the Second Supplemental Indenture was executed on June 30, 2023.

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).

The Class A-R Notes are collateralized primarily by a portfolio of U.S. middle-market corporate loans and are managed by Churchill Asset Management LLC (the Investment Manager) as of June 30, 2023. Prior to June 30, 2023, Nuveen Alternatives Advisors LLC served as the investment manager but delegated all investment advisory functions to Churchill Asset Management LLC. The Investment Manager is a subsidiary of Teachers Insurance and Annuity Association of America.

CREDIT RATING RATIONALE
The rating action on the Class A-R Notes is a result of the execution of the Second Supplemental Indenture, which amends the benchmark reference rate. The amendment transitions the transaction’s Benchmark Rate to: (i) Term SOFR plus (ii) the Term SOFR Modifier (0.26161%). The Reinvestment Period ended on October 20, 2022. The Stated Maturity of the Class A-R Notes is October 20, 2030.

DBRS Morningstar’s credit rating on the Class A-R Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are listed at the end of this Press Release.

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 the Investment 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 analyzed the actual obligations in the pool as opposed to a hypothetical pool, governed by the covenanted test limitations. The reported levels of certain Collateral Quality Tests that demonstrate the current characteristics of the transaction are presented below.

(1) Minimum Floating Spread: 4.92%
(2) Minimum Weighted Average DBRS Recovery Rate: 50.75%
(3) Maximum DBRS Risk Score: 26.32%
(4) DBRS Diversity: 49

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 (currently 100%) and (2) the strong diversification of underlying obligations. Some challenges were identified, such as: (1) the weighted-average (WA) credit quality of the underlying obligors may fall below investment grade 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 July 7, 2023, the Issuer is in compliance with all Coverage and Collateral Quality Tests, as well as the Concentration Limitation tests. Approximately $21.6 million defaulted obligations were registered in the underlying portfolio as of July 7, 2023. The overcollateralization test would still pass with the defaulted obligations carried at zero value.

DBRS Morningstar analyzed each loan in the pool separately by inputting its tenor, DBRS Morningstar rating, country of origin, and industry into the DBRS CLO Asset Model. The model-based analysis, along with the cash flow engine output, produced satisfactory results which supported the rating confirmations and upgrade on the Class A-R Notes.

DBRS Morningstar modeled the transaction using the DBRS 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” (February 7, 2023; www.dbrsmorningstar.com/research/409499).

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 does not already rate. Credit estimates are not ratings; rather, they represent a model-driven default probability for each obligor that helps when rating a facility.

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 coronavirus 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 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. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

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.

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 Securitizations” (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 17, 2023, when DBRS Morningstar placed its rating on the Class A-R Notes Under Review with Developing Implications.

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: Oxana Rhybak, Vice President, U.S. Structured Credit
Rating Committee Chair: Jerry van Koolbergen, Managing Director, U.S. Structured Credit
Initial Rating Date: August 25, 2016

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

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

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

-- 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), www.dbrsmorningstar.com/research/415687