DBRS Morningstar Confirms Credit Ratings on the Secured Notes Issued by BlackRock DLF X CLO 2022-1, LLC, Removes Under Review with Developing Implications Status of the Credit Ratings

DBRS, Inc. (DBRS Morningstar) confirmed the following credit ratings on the Class A-1, Class A-2, Class B, Class C, Class D, and Class W Notes (together, the Secured Notes) issued by BlackRock DLF X CLO 2022-1, LLC, pursuant to the Note Purchase and Security Agreement (the NPSA) dated August 5, 2022, among BlackRock DLF X CLO 2022-1, LLC, as the Issuer; Wilmington Trust National Association, as the Collateral Agent, Custodian, Collateral Administrator, Information Agent, and Note Agent; and the Purchasers.

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

At the same time, DBRS Morningstar removed the Under Review with Developing Implications of the credit ratings where they were placed on November 9, 2023.

The credit ratings on the Class A-1 and Class 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 repayment of principal on or before the Stated Maturity of August 5, 2034.

The credit ratings on the Class B, Class C, Class D, 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 repayment of principal on or before the Stated Maturity of August 5, 2034. 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 credit rating action is a result of DBRS Morningstar’s review of the transaction performance by applying the “Global Methodology for Rating CLOs and Corporate CDOs,” released on October 22, 2023. The Reinvestment Period end date is August 5, 2026. The Stated Maturity is August 5, 2034. DBRS Morningstar monitors transaction performance metrics based on the periodicity of the transaction’s reporting. The performance metrics include: Collateral Quality Tests, Coverage Tests, Concentration Limitations, and Performing Collateral Par. As of September 12, 2023, the Issuer is in compliance with all performance metrics. DBRS Morningstar confirmed the rating on the Secured Notes as the current transaction performance is within DBRS Morningstar’s expectation.

Some of the performance metrics that DBRS Morningstar reviewed are listed below:

Collateral Quality Tests
Minimum Weighted Average Spread: Subject to Collateral Quality Matrix; 5.50%
Minimum Weighted Average Coupon: Subject to Collateral Quality Matrix; 7.00%
Maximum Risk Score: Subject to Collateral Quality Matrix; 41.25%
Minimum Weighted Average Recovery Rate Test: Subject to Collateral Quality Matrix; 43.80%
Minimum Diversity Score Test; Subject to Collateral Quality Matrix; 20

Coverage Tests
Class A Overcollateralization Ratio: 134.18%
Class B Overcollateralization Ratio: 119.11%
Class C Overcollateralization Ratio: 117.63%
Class D Overcollateralization Ratio: 112.76%

Class A Interest Coverage: 150.00%
Class B Interest Coverage: 140.00%
Class C Interest Coverage: 120.00%
Class D Interest Coverage: 110.00%
Class W Interest Coverage: 100.00%

In its review, DBRS Morningstar also 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 credit quality of the underlying collateral and the ability of the transaction to reinvest Principal Proceeds into new Collateral Obligations, subject to the Eligibility Criteria, which include testing the Concentration Limitations, Collateral Quality Tests, and Coverage Tests.
(4) DBRS Morningstar’s assessment of the origination, servicing, and CLO management capabilities of BlackRock Capital Investment Advisors, LLC.
(5) The legal structure as well as legal opinions addressing certain matters of the Issuer and the consistency with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance” methodology.

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. 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.

The transaction is performing according to the contractual requirements of the NPSA. There were no defaults registered in the underlying portfolio to date. Considering the transaction performance, its legal aspects and structure, DBRS Morningstar confirmed its credit ratings on the Secured Notes issued by BlackRock DLF X 2022-1 CLO, LLC.

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 credit ratings; rather, they represent a model-driven default probability for each obligor that DBRS Morningstar uses when rating the Secured Notes.

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 COVID-19 pandemic scenarios, which were first published in April 2020.

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.

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 methodology applicable to the credit rating is the Global Methodology for Rating CLOs and Corporate CDOs (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.

DBRS, Inc.
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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]