Morningstar DBRS Confirms Credit 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. (Morningstar DBRS) confirmed its AAA (sf) credit rating and removed the Under Review with Developing Implications status 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 the Issuer; the Co-Issuer; and The Bank of New York Mellon Trust Company, N.A. (rated AA (high) with a Stable trend by Morningstar DBRS) as Trustee. The First Supplemental Indenture was executed on October 22, 2018, and the Second Supplemental Indenture was executed on June 30, 2023.

The credit 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/DESCRIPTION
The credit rating action is a result of Morningstar DBRS’ review of the transaction performance and application of the “Global Methodology for Rating CLOs and Corporate CDOs” (the CLO Methodology), including the Morningstar DBRS CLO Insight Model, initially released on October 22, 2023. On November 9, 2023, the credit rating was placed Under Review with Developing Implications to allow Morningstar DBRS to review the credit rating using the CLO Methodology. The Reinvestment Period ended on October 20, 2022. The Stated Maturity of the Class A-R Notes is October 20, 2030.

In its analysis, Morningstar DBRS 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) Morningstar DBRS’ assessment of the origination, servicing, and CLO management capabilities of the Investment Manager and Churchill Asset Management LLC as Subadvisor.
(6) The legal structure as well as legal opinions addressing certain matters of the Borrower and the consistency with the Morningstar DBRS “Legal Criteria for U.S. Structured Finance” methodology.

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 entered its amortization period on October 20, 2022, with limited ability to reinvest. To account for the static pool, Morningstar DBRS analyzed the actual obligations in the pool as reported in the trustee report on February 7, 2024, which took into account a failing Weighted-Average Life Test. Failures of this nature are expected to be observed in static transactions well into the amortization period. Morningstar DBRS considered this failure while analyzing the transaction performance to account for the static pool.

Morningstar DBRS analyzed each loan in the pool separately by inputting its credit rating, seniority, country of origin, and industry, among others, into the Morningstar DBRS CLO Insight Model. The Coverage Tests and Collateral Quality Tests that that Morningstar DBRS modeled in its analysis are presented below:

Coverage Tests:
Class A/B Overcollateralization Test: Threshold 138.10%; Current 158.73%
Class C Overcollateralization Test: Threshold 125.80%; Current 139.53%
Class D Overcollateralization Test: Threshold 116.70%; Current 125.44%
Class E Overcollateralization Test: Threshold 109.10%; Current 113.94%
Class A/B Interest Coverage Test: Threshold 120.00%; Current 219.48%
Class C Interest Coverage Test: Threshold 110.00%; Current 188.99%
Class D Interest Coverage Test: Threshold 105.00%; Current 165.17%

Collateral Quality Tests:
Minimum Floating Spread: Threshold 4.20%; Current 5.21%
Minimum Weighted-Average Morningstar DBRS Recovery Rate: Threshold 46.50%; Current 50.75%
Maximum Morningstar DBRS Risk Score: Threshold 28.26%; Current 35.20%
Morningstar DBRS Diversity: Threshold 24; Current 43

Morningstar DBRS analyzed the transaction using the Morningstar DBRS CLO Insight Model and its proprietary cash flow engine, which incorporated assumptions regarding principal amortization, principal prepayment, amount of interest generated, principal prepayments, default timings, and recovery rates, among other credit considerations referenced in Morningstar DBRS’ “Global Methodology for Rating CLOs and Corporate CDOs” (February 24, 2024; https://dbrs.morningstar.com/research/428544).

Model-based analysis, which had incorporated the above-mentioned Weighted-Average Life Test and Concentration Limitation failures, produced satisfactory results. Considering the transaction performance, as well as its legal aspects and structure, Morningstar DBRS confirmed its credit ratings on the above-mentioned Class A-R Notes.

The transaction assumptions consider Morningstar DBRS’ baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: December 2023 Update,” published on December 19, 2023 (https://dbrs.morningstar.com/research/425506). These baseline macroeconomic scenarios replace Morningstar DBRS’ moderate and adverse coronavirus pandemic scenarios, which were first published in April 2020.

For more information regarding Morningstar DBRS’ 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)” at https://dbrs.morningstar.com/research/361112.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a relevant or significant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) https://dbrs.morningstar.com/research/427030.

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

The principal methodology applicable to the credit rating is Global Methodology for Rating CLOs and Corporate CDOs and the CLO Insight Model version 1.0.1.0 (February 23, 2024) https://dbrs.morningstar.com/research/428544.

Other methodologies referenced in this transaction are listed at the end of this press release.

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.

Morningstar DBRS 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 issuer took place on November 9, 2023, when Morningstar DBRS placed the credit rating Under Review with Developing Implications.

For further information on Morningstar DBRS 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 Morningstar DBRS 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, Sector Lead,
Rating Committee Chair: Glen Leppert, Senior Vice President, Sector Lead,
Initial Rating Date: August 25, 2016

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://dbrs.morningstar.com/about/methodologies.

Operational Risk Assessment for CLOs and CDOs (September 14, 2023)
https://dbrs.morningstar.com/research/420608

Legal Criteria for U.S. Structured Finance (December 7, 2023)
https://dbrs.morningstar.com/research/425081

Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024)
https://dbrs.morningstar.com/research/428623

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.