DBRS Morningstar Upgrades and Confirms Credit Ratings on Notes Issued by TCP DLF VIII 2018 CLO, LLC

DBRS, Inc. (DBRS Morningstar) upgraded its credit ratings on the Class A-2 Notes, Class B Notes, Class C Notes, Class D Notes, and Class E Notes and confirmed its credit rating on the Class A-1 Notes (together, the Notes) issued by TCP DLF VIII 2018 CLO, LLC (the Issuer). The Notes were issued pursuant to the Note Purchase and Security Agreement dated as of February 28, 2018 (the NPSA), among the Issuer; U.S. Bank National Association (rated AA (high) with a Negative trend by DBRS Morningstar) as Collateral Agent, 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 to AAA (sf) from AA (high) (sf)
-- Class B Notes to AA (high) (sf) from AA (low) (sf)
-- Class C Notes to AA (high) from A (low) (sf)
-- Class D Notes to AA (sf) from BB (high) (sf)
-- Class E Notes to AA (low) (sf) from BB (low) (sf)

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

The Notes issued by the Issuer are collateralized primarily by a portfolio of U.S. middle-market corporate loans. The Issuer is managed by Series I of SVOF/MM, LLC (the Collateral Manager), a consolidated subsidiary of Tennenbaum Capital Partners, LLC, which is itself a wholly owned subsidiary of BlackRock, Inc. DBRS Morningstar considers Series I of SVOF/MM, LLC to be an acceptable collateralized loan obligation (CLO) manager.

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating action is a result of (1) amortization of the portfolio and deleveraging of the transaction, now that the deal is past its reinvestment period; (2) the benchmark transition event that occurred as of July 3, 2023, pursuant to the NPSA referred to above; and (3) the application by DBRS Morningstar of the “Global Methodology for Rating CLOs and Corporate CDOs,” including the DBRS Morningstar CLO Insight Model, released on October 22, 2023. On August 11, 2023, DBRS Morningstar placed its credit ratings on the Secured Notes Under Review with Developing Implications to analyze the transaction pursuant to the benchmark transition event.

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

-- The Note Purchase and Security Agreement dated as of February 28, 2018.
-- 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 Series I of SVOF/MM, LLC.

The Secured Notes are collateralized primarily by a portfolio of U.S. middle-market corporate loans. This portfolio is static in nature and does not allow for reinvestment. To account for a static pool, DBRS Morningstar analyzed the actual obligations in the pool as reported in the trustee report on October 20, 2023. The Coverage Tests and triggers as well as the Collateral Quality Tests that DBRS Morningstar used in its analysis are presented below:

Class A-2 Overcollateralization (OC): 143.97%
Class B OC: 134.18%
Class C OC: 127.71%
Class D OC: 120.03%
Class E OC: 117.55%

Class A-2 Interest Coverage (IC): 150.00%
Class B IC: 140.00%
Class C IC: 130.00%
Class D IC: 120.00%
Class E IC: 110.00%

Minimum Weighted-Average Spread: 5.75%
Minimum Weighted-Average Coupon: 8.00%
Maximum DBRS Morningstar Risk Score: 40.75%
Minimum Weighted-Average Recovery Rate: 47.0%
Minimum Diversity Score: 30
Maximum Weighted-Average Life: 2.75 years
Maximum Senior Advance Rate: 81.00%

DBRS Morningstar analyzed the transaction using the DBRS Morningstar CLO Insight Model and its proprietary cash flow engine, which incorporated assumptions regarding principal amortization, amount of interest generated, principal pre-payments, default timings, and recovery rates, among other credit considerations referenced in the DBRS Morningstar DBRS Morningstar “Global Methodology for Rating CLOs and Corporate CDOs” (October 22, 2023; https://www.dbrsmorningstar.com/research/422269). Model-based analysis produced satisfactory results, which supported the respective confirmations and upgrades of the credit ratings on the Notes.

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

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 is used in assigning ratings to a facility.

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

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).

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.

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:

The last credit rating action on this transaction took place on August 15, 2023, when DBRS Morningstar placed the credit ratings on the 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: February 28, 2018

DBRS, Inc.
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New York, NY 10005 USA
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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.

-- 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].