Morningstar DBRS Assigns Credit Ratings to the Class A Loans of BlackRock Mt. Lassen Senior Loan Funding XII, LLC, Series 1

DBRS, Inc. (Morningstar DBRS) assigned the following credit ratings to the Class A-R Loans and the Class A-T Loans (together, the Class A Loans) issued by BlackRock Mt. Lassen Senior Loan Funding XII, LLC, Series 1 pursuant to the Amended and Restated Credit Agreement, dated as of November 8, 2024, among BlackRock Mt. Lassen Senior Loan Funding XII, LLC, Series 1, as Borrower; BlackRock Mt. Lassen Senior Loan Funding XII, LLC, as Subordinated Lender; The Bank of Nova Scotia, as Administrative Agent; Wilmington Trust, National Association, as Collateral Agent, Collateral Administrator, Information Agent, Securities Intermediary, and Collateral Custodian; and the Lenders party thereto:

-- The Class A-R Loans rated AA (sf)
-- The Class A-T Loans rated AA (sf)

The credit ratings on the Class A Loans address the timely payments of interest (excluding any Capped Amounts and the additional interest payable at the Post-Default Rate, as defined in the Credit Agreement referred to above) and the ultimate payment of principal on or before the Scheduled Maturity Date (as defined in the Credit Agreement referred to above).

CREDIT RATING RATIONALE/DESCRIPTION
BlackRock Mt. Lassen Senior Loan Funding XII, LLC, Series 1 (the Borrower) is a registered series of BlackRock Mt. Lassen Senior Loan Fund XII, LLC, a series limited liability company organized under the law of the State of Delaware. The Borrower is a cash flow collateralized loan obligation (CLO) transaction that is collateralized primarily by a portfolio of U.S. senior secured middle-market corporate loans. The Reinvestment Period scheduled end date is December 28, 2025. The Scheduled Stated Maturity is December 28, 2032.

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 Loans to withstand projected collateral loss rates under various cash flow stress scenarios.
(4) The credit quality of the underlying collateral and the ability of the transaction to reinvest Principal Proceeds into new Collateral Loans, subject to the Eligibility Criteria, which include testing the Concentration Limitations, Collateral Quality Tests, and Coverage Tests.
(5) Assessment of the CLO management capabilities of BlackRock Capital Investment Advisors, LLC, as the Collateral Manager.
(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.

The transaction has a dynamic structural configuration that permits variations of certain asset metrics via a selection of an applicable row from a collateral quality matrix (the CQM). Depending on a given Minimum Diversity Score Level, the following metrics are selected accordingly from the applicable row of the CQM: Minimum Weighted DBRS Average Recovery Rate Level, Maximum Weighted Average Risk Score Level, Maximum Class A Advance Rate, Minimum Senior Overcollateralization Ratio Level, Minimum Senior Interest Coverage Ratio Level, Maximum Class B Advance Rate, Minimum Junior Overcollateralization Ratio Level, Minimum Junior Interest Coverage Ratio Level, etc. Morningstar DBRS analyzed each structural configuration as a unique transaction and all configurations (rows) passed the applicable Morningstar DBRS rating stress levels. The Coverage Tests and triggers as well as the Collateral Quality Tests that Morningstar DBRS modelled during its analysis are presented in the tables below:

(1) Minimum Senior Overcollateralization Ratio Level: 138.46%
(2) Minimum Senior Interest Coverage Ratio Level: 130.00%
(3) Minimum Junior Overcollateralization Ratio Level: 122.50%
(4) Minimum Junior Interest Coverage Ratio Level: 115.00%
(5) Minimum Diversity Score Level: 8
(6) Minimum Weighted DBRS Average Recovery Rate Level: 51.00%
(7) Maximum Weighted Average Risk Score Level: 38.43%
(8) Maximum Class A Advance Rate: 65%
(9) Maximum Class B Advance Rate: 75%

Some particular strengths of the transaction are (1) the collateral quality, which will consist mostly of senior-secured middle-market loans; (2) the expected adequate diversification of the portfolio of collateral obligations (Diversity Score, matrix driven); and (3) the Collateral Manager's expertise in CLOs and overall approach to selection of Collateral Loans.

Some challenges were identified: (1) the expected weighted-average credit quality of the underlying obligors may fall below investment grade (per the CQM), and the majority may not have public ratings once purchased, and (2) the underlying collateral portfolio may be insufficient to redeem the Class A Loans in an Event of Default.

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" (September 19, 2024; https://dbrs.morningstar.com/research/439759) and CLO Insight Model v.1.0.1.4.

Model-based analysis, which incorporated the above-mentioned collateral quality matrix, produced satisfactory results. Considering the analysis, as well as the transaction's legal aspects and structure, Morningstar DBRS assigned its credit ratings on the Class A Loans.

To assess portfolio credit quality, Morningstar DBRS provides a credit estimate or internal assessment for each nonfinancial 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 Class A Loans.

Morningstar DBRS' credit rating on the Class A Loans addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the interest (excluding any Capped Amounts and the additional interest payable at the Post-Default Rate) and the principal due on the Class A Loans.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, Capped Amount, Post-Default Rate, and Increased Costs.

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. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

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 rating is Global Methodology for Rating CLOs and Corporate CDOs (September 19, 2024; https://dbrs.morningstar.com/research/439759) and CLO Insight Model v.1.0.1.4.

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.

DBRS, Inc.
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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 (October 28, 2024; https://dbrs.morningstar.com/research/441840)

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