Morningstar DBRS Confirms Credit Rating on the Class A Notes Issued by CBAM 2018-5, Ltd.

DBRS, Inc. (Morningstar DBRS) confirmed its credit rating of AAA (sf) on the Class A Notes (the Notes) issued by CBAM 2018-5, Ltd. and CBAM 2018-5, LLC (together, the Co-Issuers).

The Notes were issued pursuant to the Indenture dated as of March 29, 2018, as amended by the Second Supplemental Indenture, dated as of June 30, 2023 (the Indenture), between the Co-Issuers and U.S. Bank National Association (rated AA with a Stable trend by Morningstar DBRS) as the Trustee.

The credit rating on the Notes addresses the timely payment of interest and ultimate payment of principal in accordance with the terms of the Indenture referred to above.

The Notes issued by the Co-Issuers are collateralized primarily by a portfolio of U.S. senior secured, floating-rate, broadly syndicated, corporate loans. The collateralized loan obligation (CLO) is managed by The Carlyle Group (Carlyle), which acquired the preceding Collateral Manager, CBAM CLO Management, LLC (CBAM). Morningstar DBRS considers Carlyle to be an acceptable CLO manager.

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating action is a result of Morningstar DBRS' surveillance review of the transaction performance. The Stated Maturity is April 17, 2031. The Reinvestment Period ended on April 17, 2023. The rating confirmation is a result of the Class A Notes performing within Morningstar DBRS' expectation. Morningstar DBRS applied the Current Profile analysis, which is based on the actual pool of assets. Given the static pool, Morningstar DBRS analyzed the actual loans in the pool, as opposed to a hypothetical pool, governed by the covenanted test limitations. The Current Profile analysis produced satisfactory results that warranted the above-mentioned rating confirmation.

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 Notes to withstand projected collateral loss rates under various cash flow stress scenarios.
(4) The credit quality of the underlying collateral.
(5) Morningstar's DBRS assessment of the origination, servicing, and CLO management capabilities of Ares as the Collateral Manager.

The transaction entered the amortization period on April 17, 2023, which assumes limited reinvestment abilities that are subject to the Post-Reinvestment Period Criteria. To account for the primarily static pool, Morningstar DBRS analyzed the actual obligations in the pool as reported in the trustee report as of May 15, 2024. The Coverage Tests and Collateral Quality (CQ) Tests that Morningstar DBRS modeled in its analysis are presented below:

(1) Minimum Floating Spread Test: 3.45%
(2) Minimum Weighted-Average Moody's Recovery Rate Test: 43.00%
(3) Moody's Diversity Test: 79
(4) Moody's Maximum Rating Factor Test: 2966
(5) Weighted-Average Life (WAL) Test: 3.77

Some particular strengths of the transaction are (1) collateral quality that consists of at least 90% senior-secured floating-rate broadly-syndicated loans, (2) the adequacy of cash collected from the collateral to pay the interest, and (3) the strong diversification of underlying obligations. Some challenges were identified as follows: (1) the weighted-average credit quality of the underlying obligors may fall below investment grade; (2) the underlying collateral portfolio may be insufficient to redeem the Notes in an Event of Default.

As of May 15, 2024, the transaction is failing three collateral quality tests (the WAL test: 3.77 vs the threshold of 2.94; the Diversity test: 79 vs the threshold of 81; the Moody's Maximum Rating Factor test: 2966 vs the threshold of 2962) as well the concentration limit in CCC collateral obligations (11.0% vs the threshold of 7.5%). Failures of this nature are expected to be observed in static transactions well into the amortization period. Morningstar DBRS considered these failures while analyzing the transaction performance to account for the static pool. Morningstar DBRS analyzed each loan in the pool separately by inputting its tenor, Morningstar DBRS rating, country of origin, and industry among others into the DBRS CLO Insight Model. The model-based analysis along with the cash flow engine output produced satisfactory results, which supported the credit rating confirmation on the Notes.

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).

Morningstar DBRS notes that a legal analysis, which included but was not limited to legal opinions and various transaction documents, was performed by Morningstar Credit Ratings (MCR). In addition, MCR engaged external counsel as part of its process of assigning new ratings to the CLOs on or prior to the closing date. Morningstar DBRS did not perform additional legal analysis for the purpose of assigning or monitoring ratings to the Notes, unless otherwise indicated in this press release.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factor(s) that had a significant or relevant 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 (23 January 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 (February 23, 2024) and the CLO Insight Model v1.0.1.0 . 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.

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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The principal methodology applicable to the credit rating is Global Methodology for Rating CLOs and Corporate CDOs (February 23, 2024) and the CLO Insight Model v1.0.1.0. https://dbrs.morningstar.com/research/428544

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

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

Legal Criteria for U.S. Structured Finance (April 15, 2024)
https://dbrs.morningstar.com/research/431205

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