Morningstar DBRS Confirms and Upgrades Credit Ratings on the Notes of BlackRock DLF IX 2020-1 CLO, LLC

DBRS, Inc. (Morningstar DBRS) confirmed and upgraded its credit ratings on the Class A-1 Notes, Class A-2 Notes, Class B Notes, Class C Notes, Class D Notes, Class E Notes (together, the Secured Notes), and the Class W Notes (together with the Secured Notes, the Notes) issued by BlackRock DLF IX 2020-1 CLO, LLC, pursuant to the Note Purchase and Security Agreement (the NPSA) dated as of July 21, 2020, among BlackRock DLF IX 2020-1 CLO, LLC, as Issuer, U.S. Bank National Association (rated AA stb / R-1 (high) stb by Morningstar DBRS), as Collateral Agent, Custodian, Document Custodian, Collateral Administrator, Information Agent, and Note Agent, and the Purchasers referred to therein:

-- Class A-1 Notes confirmed at AAA (sf)
-- Class A-2 Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (sf) from AA (low) (sf)
-- Class C Notes upgraded to AA (low) (sf) from A (high) (sf)
-- Class D Notes upgraded to A (low) (sf) from BBB (high) (sf)
-- Class E Notes upgraded to BBB (low) (sf) from BB (high) (sf)
-- Class W Notes upgraded to BB (low) (sf) from B (sf)

The credit ratings on the Class A-1 Notes 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 payment of principal on or before the Stated Maturity of July 21, 2030.

The credit ratings on the Class B Notes, Class C Notes, Class D Notes, Class E Notes, 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 payment of principal on or before the Stated Maturity of July 21, 2030. The Class W Notes have a fixed-rate coupon that is lower than the spread/coupon of some of the more-senior 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.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating action is a result of Morningstar DBRS' annual review of the transaction performance. The Reinvestment Period ended on July 21, 2024. The Stated Maturity is July 21, 2030.

The rationale for Morningstar DBRS's credit rating actions on the Notes is that the static-pool analysis produced lower expected losses, given the greater certainty about the underlying pool of assets. Given a static pool, Morningstar DBRS analyzed the actual obligations in the pool as opposed to a hypothetical pool, which is governed by the covenanted test limitations. The actual pool analysis produced better than expected loss results, which warranted the credit rating actions.

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 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) Morningstar DBRS' 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 Morningstar DBRS "Legal Criteria for U.S. Structured Finance" methodology.

The 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, Morningstar DBRS analyzed the actual obligations in the pool as reported in the trustee report on August 8, 2024, accounting for a failing Minimum Weighted Average Spread test (5.56% vs required 5.75%), a failing Minimum Weighted Average Coupon test (3.77% vs required 6.00%), a failing Weighted Average Life test (WAL, the actual WAL produced by the pool was used), and two defaulted obligors ($7.77MM). Morningstar DBRS analyzed each loan in the pool separately by inputting its tenor, Morningstar DBRS 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.

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

Collateral Quality Tests

Minimum Weighted Average Spread: Actual 5.56%; Required 5.75%
Minimum Weighted Average Coupon: Actual 3.77%; Required 6.00%
Maximum Risk Score: Actual 37.56; Required 38.00
Minimum Weighted Average Recovery Rate Test: Actual 48.9%; Required 47.5%
Minimum Diversity Score Test: Actual 41; Required 30

Coverage Tests

Class A Overcollateralization Ratio: Actual 167.86%; Required 143.97%
Class B Overcollateralization Ratio: Actual 152.16%; Required 134.18%
Class C Overcollateralization Ratio: Actual 141.17%; Required 127.71%
Class D Overcollateralization Ratio: Actual 130.77%; Required 120.03%
Class E Overcollateralization Ratio: Actual 123.01%; Required 117.55%

Class A Interest Coverage: Actual 326.99%; Required 150.00%
Class B Interest Coverage: Actual 292.27%; Required 140.00%
Class C Interest Coverage: Actual 265.84%; Required 130.00%
Class D Interest Coverage: Actual 240.59%; Required 110.00%
Class E Interest Coverage: Actual 221.61%; Required 110.00%
Class W Interest Coverage: Actual 214.08%; Required 100.00%

Some particular strengths of the transaction are (1) the collateral quality, which consists mostly of senior-secured floating-rate MM loans; and (2) the adequate diversification of the portfolio of collateral obligations (the current DScore of 41 compared with test level of 30). Some challenges were identified as follows: (1) the WA 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 Notes in an Event of Default.

The transaction is performing according to the contractual requirements of the NPSA. There were three defaults registered in the underlying portfolio to date with total principal balance of (totaling $7,774,051). Considering the transaction performance, its legal aspects, and structure, Morningstar DBRS confirmed and upgraded its credit ratings 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, amount of interest generated, principal pre-payments, default timings, and recovery rates, among other credit considerations referenced in the Morningstar DBRS "Global Methodology for Rating CLOs and Corporate CDOs" (February 23, 2024; https://dbrs.morningstar.com/research/428544). Model-based analysis produced satisfactory results, which supported the respective credit rating actions on the Notes.

To assess portfolio credit quality, Morningstar DBRS provides a credit estimate or internal assessment for each non-financial corporate obligor in the portfolio not rated by Morningstar DBRS. Credit estimates are not ratings; rather, they represent a model-driven default probability for each obligor that Morningstar DBRS uses when rating the Notes.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

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 Factors in Credit Ratings (August 13, 2024; https://dbrs.morningstar.com/research/437781).

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

The principal methodology applicable to the credit ratings is Global Methodology for Rating CLOs and Corporate CDOs (February 23, 2024; https://dbrs.morningstar.com/research/428544) and the CLO Insight Model v1.0.1.2.

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.

These 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:

The last credit rating action on this issuer took place on November 29, 2023, when Morningstar DBRS confirms the credit ratings on the Notes.

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, U.S. Structured Credit
Rating Committee Chair: Jerry van Koolbergen, Managing Director, U.S. Structured Credit
Initial Rating Date: July 24, 2020

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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.

Operational Risk Assessment for Collateralized Loan Obligations (CLOs) and Corporate Collateralized Debt Obligations (CDOs) (August 23, 2024; https://dbrs.morningstar.com/research/438315)

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.