DBRS Morningstar Places Credit Ratings on 46 Collateralized Loan Obligations Under Review with Developing Implications Following Release of the Updated CLO Methodology

DBRS, Inc. (DBRS Morningstar) placed its public credit ratings on 185 tranches in 46 collateralized loan obligations (CLOs) Under Review with Developing Implications. The complete list of credit ratings affected is available at the end of this press release.

RATING RATIONALE
On October 22, 2023, DBRS Morningstar finalised its “Global Methodology for Rating CLOs and Corporate CDOs” (the CLO Methodology) and DBRS Morningstar CLO Insight Model (v.1.0.0.0) (the CLO Insight Model; collectively, the CLO Methodology, including the CLO Insight Model). The CLO Methodology, including the CLO Insight Model, presents the criteria that DBRS Morningstar uses to assign new credit ratings and monitor outstanding credit ratings in the CLO asset class globally.

The CLO Methodology, including the CLO Insight Model, supersedes two existing DBRS Morningstar methodologies: “Rating CLOs and CDOs of Large Corporate Credit” (published on October 6, 2023) and “Cash Flow Assumptions for Corporate Credit Securitizations” (published on February 7, 2023), and the related public predictive model, “DBRS Morningstar CLO Asset Model” (collectively, the Superseded CLO Methodologies, including the CLO Asset Model).

Accordingly, DBRS Morningstar subsequently has withdrawn and archived the Superseded CLO Methodologies, including the CLO Asset Model.

The rationale for the credit ratings being placed Under Review with Developing Implications is to allow for DBRS Morningstar to review the credit ratings using the CLO Methodology, including the CLO Insight Model. Credit ratings placed Under Review with Developing Implications may be upgraded, confirmed, or downgraded by a subsequent rating committee.

The CLO Methodology, including the CLO Insight Model, incorporates changes outlined in a the press release from October 22, 2023: https://www.dbrsmorningstar.com/research/422283.

The overall impact on outstanding public and private credit ratings is expected to be limited. Most of the affected outstanding CLO credit ratings are expected to be confirmed, with a limited number of expected upgrades or downgrades with a magnitude of one to two notches.

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.

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 2023 Update” (https://www.dbrsmorningstar.com/research/421227), published on September 28, 2023. 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 (July 4, 2023) at https://www.dbrsmorningstar.com/research/416784.

Notes
The principal methodology applicable to each of the affected credit ratings is the Global Methodology for Rating CLOs and Corporate CDOs and the DBRS Morningstar CLO Insight Model (v.1.0.0.0) (October 22, 2023; https://www.dbrsmorningstar.com/research/422269).

For the below 11 transactions, Mapping Financial Institution Internal Ratings to DBRS Morningstar Ratings for Global Structured Credit Transactions (February 17, 2023; www.dbrsmorningstar.com/research/410076) is an additional principal methodology.

(1) Granville USD Ltd.
(2) Kawartha CAD LTD., Boreal 2021-1
(3) Kawartha CAD LTD., Boreal 2022-1
(4) Kawartha CAD LTD., Boreal 2022-2
(5) Manitoulin USD Ltd., Algonquin 2022-1
(6) Manitoulin USD Ltd., Algonquin 2022-2
(7) Manitoulin USD Ltd., Algonquin 2022-3
(8) Manitoulin USD Ltd., Algonquin 2022-4
(9) Manitoulin USD Ltd., Algonquin 2023-1
(10) Manitoulin USD Ltd., Muskoka 2019-1
(11) Manitoulin USD Ltd., Muskoka 2022-1

For the below three transactions, North American CMBS Multi-Borrower Rating Methodology and DBRS Morningstar CMBS Insight Model (v 1.1.0.0) (March 16, 2023; https://www.dbrsmorningstar.com/research/410913) is an additional principal methodology.

(1) Kawartha CAD LTD., Boreal 2021-1
(2) Kawartha CAD LTD., Boreal 2022-1
(3) Kawartha CAD LTD., Boreal 2022-2

Other methodologies referenced in these transactions 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 ratings were initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the credit rating process for these credit rating actions.

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.

These are solicited credit ratings.

For the three Issuers listed below, DBRS Morningstar materially deviated from its principal methodology when determining the assigned credit ratings.

(1) Kawartha CAD Ltd., Boreal 2021-1
The last credit rating action on this transaction took place on March 28, 2023, when DBRS Morningstar confirmed its provisional ratings on the Tranche Amounts and confirmed its ratings on the Notes.

DBRS Morningstar materially deviated from its principal methodologies when determining the credit ratings assigned to the Tranche Amounts and the Notes. The LGD assumptions for the CRE Builder Developer portion of the guaranteed portfolio were derived via BMO’s historical realized LGDs, rather than as part of any primary or related methodologies. The material deviation is warranted given that no primary or related methodology governs the application of LGD assumptions for CRE Builder Developer loans.

(2) Kawartha CAD Ltd., Boreal 2022-1
The last credit rating action on this transaction took place on March 28, 2023, when DBRS Morningstar confirmed its ratings on the Tranche Amounts and the Notes.

DBRS Morningstar materially deviated from its principal methodologies when determining the credit ratings assigned to the Tranche Amounts and the Notes. The LGD assumptions for the CRE Builder Developer portion of the guaranteed portfolio were derived via BMO’s historical realized LGDs, rather than as part of any primary or related methodologies. The material deviation is warranted given that no primary or related methodology governs the application of LGD assumptions for CRE Builder Developer loans.

(3) Kawartha CAD Ltd., Boreal 2022-2
The last credit rating action on this transaction took place on February 27, 2023, when DBRS Morningstar finalized its provisional ratings on the Notes.

DBRS Morningstar materially deviated from its principal methodologies when determining the credit ratings assigned to the Tranche Amounts and the Notes. The LGD assumptions for the CRE Builder Developer portion of the guaranteed portfolio were derived via BMO’s historical realized LGDs, rather than as part of any primary or related methodologies. The material deviation is warranted given that no primary or related methodology governs the application of LGD assumptions for CRE Builder Developer loans.

For the 14 Issuers below, the credit ratings are 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:

(1) BlackRock DLF IX 2019-G CLO, LLC
The last credit rating action on this transaction took place on August 22, 2023, when DBRS Morningstar confirmed its credit ratings on the Notes.

(2) BlackRock DLF IX 2020-1 CLO, LLC
The last credit rating action on this transaction took place on July 19, 2023, when DBRS Morningstar confirmed its credit ratings on the Notes.

(3) Cerberus Loan Funding XXIV L.P.
The last credit rating action on this transaction took place on August 15, 2023, when DBRS Morningstar confirmed the Class A Loans and the Class A-1 Notes.

(4) Cerberus ND Levered LLC
The last credit rating action on this transaction took place on February 17, 2023, when DBRS Morningstar confirmed its credit rating on the Advances.

(5) Cerberus SWC Levered II LLC
The last credit rating action on this transaction took place on September 26, 2023, when DBRS Morningstar upgraded its credit rating on the Advances.

(6) Manitoulin USD Ltd., Algonquin 2022-1
The last credit rating action on this transaction took place on April 12, 2023, when DBRS Morningstar confirmed its provisional ratings on the Tranche Amounts and confirmed its ratings on the Notes.

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, for the recovery rate, DBRS Morningstar applied the senior secured and senior unsecured recovery rates defined in its “Global Methodology for Rating CLOs and Corporate CDOs” (October 22, 2023). DBRS Morningstar applies different recovery rates depending on the recovery tier and seniority.

DBRS Morningstar uses its CLO Insight Model to determine expected default rates for the portfolio at each rating level. To determine the credit risk of each underlying reference obligation, DBRS Morningstar relied on either public ratings or a ratings mapping to DBRS Morningstar ratings of BMO’s internal ratings models. The mapping was completed in accordance with DBRS Morningstar’s “Mapping Financial Institution Internal Ratings to DBRS Morningstar Ratings for Global Structured Credit Transactions” methodology (February 17, 2023).

(7) Manitoulin USD Ltd., Algonquin 2022-2
The last credit rating action on this transaction took place on April 26, 2023, when DBRS Morningstar confirmed its provisional ratings on the Tranche Amounts and confirmed its ratings on the Notes.

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, for the recovery rate, DBRS Morningstar applied the senior secured and senior unsecured recovery rates defined in its “Global Methodology for Rating CLOs and Corporate CDOs” (October 22, 2023). DBRS Morningstar applies different recovery rates depending on the recovery tier and seniority.

DBRS Morningstar uses its CLO Insight Model to determine expected default rates for the portfolio at each rating level. To determine the credit risk of each underlying reference obligation, DBRS Morningstar relied on either public ratings or a ratings mapping to DBRS Morningstar ratings of BMO’s internal ratings models. The mapping was completed in accordance with DBRS Morningstar’s “Mapping Financial Institution Internal Ratings to DBRS Morningstar Ratings for Global Structured Credit Transactions” methodology (February 17, 2023).

(8) Manitoulin USD Ltd., Algonquin 2022-3
The last credit rating action on this transaction took place on July 7, 2023, when DBRS Morningstar upgraded and confirmed its credit ratings on certain Notes and upgraded and confirmed its provisional ratings on the Tranche Amounts.

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, for the recovery rate, DBRS Morningstar applied the senior secured and senior unsecured recovery rates defined in its “Global Methodology for Rating CLOs and Corporate CDOs” (October 22, 2023). DBRS Morningstar applies different recovery rates depending on the recovery tier and seniority.

DBRS Morningstar uses its CLO Insight Model to determine expected default rates for the portfolio at each rating level. To determine the credit risk of each underlying reference obligation, DBRS Morningstar relied on either public ratings or a ratings mapping to DBRS Morningstar ratings of BMO’s internal ratings models. The mapping was completed in accordance with DBRS Morningstar’s “Mapping Financial Institution Internal Ratings to DBRS Morningstar Ratings for Global Structured Credit Transactions” methodology (February 17, 2023).

(9) Manitoulin USD Ltd., Algonquin 2022-4
This is the first credit rating action since the Initial Rating Date on November 1, 2022, when DBRS Morningstar assigned provisional credit ratings on the Tranche Amounts.

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, for the recovery rate, DBRS Morningstar applied the senior secured and senior unsecured recovery rates defined in its “Global Methodology for Rating CLOs and Corporate CDOs” (October 22, 2023). DBRS Morningstar applies different recovery rates depending on the recovery tier and seniority.

DBRS Morningstar uses its CLO Insight Model to determine expected default rates for the portfolio at each rating level. To determine the credit risk of each underlying reference obligation, DBRS Morningstar relied on either public ratings or a ratings mapping to DBRS Morningstar ratings of BMO’s internal ratings models. The mapping was completed in accordance with DBRS Morningstar’s “Mapping Financial Institution Internal Ratings to DBRS Morningstar Ratings for Global Structured Credit Transactions” methodology (February 17, 2023).

(10) Manitoulin USD Ltd., Muskoka 2019-1
The last credit rating action on this transaction took place on February 10, 2023, when DBRS Morningstar upgraded its credit ratings on certain Notes and upgraded and confirmed its provisional ratings on the Tranche Amounts.

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, for the recovery rate, DBRS Morningstar applied the senior secured and senior unsecured recovery rates defined in its “Global Methodology for Rating CLOs and Corporate CDOs” (October 22, 2023). DBRS Morningstar applies different recovery rates depending on the recovery tier and seniority.

DBRS Morningstar uses its CLO Insight Model to determine expected default rates for the portfolio at each rating level. To determine the credit risk of each underlying reference obligation, DBRS Morningstar relied on either public ratings or a ratings mapping to DBRS Morningstar ratings of BMO’s internal ratings models. The mapping was completed in accordance with DBRS Morningstar’s “Mapping Financial Institution Internal Ratings to DBRS Morningstar Ratings for Global Structured Credit Transactions” methodology (February 17, 2023).

(11) Manitoulin USD Ltd., Muskoka 2022-1
The last credit rating action on this transaction took place on October 13, 2023, when DBRS Morningstar upgraded and confirmed its credit ratings on certain Notes and upgraded and confirmed its provisional ratings on the Tranche Amounts.

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, for the recovery rate, DBRS Morningstar applied the senior secured and senior unsecured recovery rates defined in its “Global Methodology for Rating CLOs and Corporate CDOs” (October 22, 2023). DBRS Morningstar applies different recovery rates depending on the recovery tier and seniority.

DBRS Morningstar uses its CLO Insight Model to determine expected default rates for the portfolio at each rating level. To determine the credit risk of each underlying reference obligation, DBRS Morningstar relied on either public ratings or a ratings mapping to DBRS Morningstar ratings of BMO’s internal ratings models. The mapping was completed in accordance with DBRS Morningstar’s “Mapping Financial Institution Internal Ratings to DBRS Morningstar Ratings for Global Structured Credit Transactions” methodology (February 17, 2023).

(12) Portman Ridge Funding 2018-2 Ltd.
The last credit rating action on this transaction took place on May 25, 2023, when DBRS Morningstar confirmed its credit ratings on the Class A-1 Notes.

(13) TIAA Churchill Middle Market CLO I Ltd.
The last credit rating action on this transaction took place on August 28, 2023, when DBRS Morningstar confirmed its credit rating on the Class A-R Notes.

(14) VCP CLO II, Ltd.
The last credit rating action on this transaction took place on May 3, 2023, when DBRS Morningstar confirmed and upgraded its credit ratings on the Secured Notes.

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: Siyun Chen, Vice President, Structured Credit

Rating Committee Chair: Jerry van Koolbergen, Managing Director, Structured Credit

Initial Rating Dates:
(1) BlackRock DLF IX 2019-G CLO, LLC: October 17, 2019
(2) BlackRock DLF IX 2020-1 CLO, LLC: July 24, 2020
(3) Cerberus Loan Funding XXIV L.P.: June 29, 2018
(4) Cerberus ND Levered LLC: January 31, 2020
(5) Cerberus SWC Levered II LLC: November 20, 2019
(6) Manitoulin USD Ltd., Algonquin 2022-1: April 12, 2022
(7) Manitoulin USD Ltd., Algonquin 2022-2: April 26, 2022
(8) Manitoulin USD Ltd., Algonquin 2022-3: August 17, 2022
(9) Manitoulin USD Ltd., Algonquin 2022-4: November 1, 2022
(10) Manitoulin USD Ltd., Muskoka 2019-1: January 24, 2019
(11) Manitoulin USD Ltd., Muskoka 2022-1: October 13, 2022
(12) Portman Ridge Funding 2018-2 Ltd.: September 21, 2018
(13) TIAA Churchill Middle Market CLO I Ltd.: August 25, 2016
(14) VCP CLO II, Ltd.: February 5, 2021

The credit ratings for the following eleven Issuers are also affected by the finalization of the CLO Methodology, including the CLO Insight Model. However, DBRS Morningstar is not taking a rating action on the outstanding credit ratings for these issuers at this time because their credit ratings have previously been placed Under Review with Developing Implications. The impact of the finalization of the CLO Methodology, including the CLO Insight Model, will be included in the relevant credit ratings upon resolution of the previously assigned Under Review statuses:

(1) Ares XLVI CLO Ltd.
(2) Ares XXXIR CLO Ltd.
(3) BlackRock DLF IX 2019 CLO, LLC
(4) BlackRock DLF IX CLO 2021-1, LLC
(5) BlackRock DLF IX CLO 2021-2, LLC
(6) BTC Holdings Fund I, LLC
(7) BTC Holdings Fund II LLC
(8) BTC Offshore Holdings Fund II-B LLC
(9) CBAM 2018-5, Ltd.
(10) Signal Peak CLO 6, Ltd
(11) TCP DLF VIII 2018 CLO, LLC

DBRS, Inc.
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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.

-- Operational Risk Assessment for Collateralized Loan Obligations (CLOs) and Corporate Collateralized Debt Obligations (CDOs) (September 14, 2023; https://www.dbrsmorningstar.com/research/420608)
-- 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].