Morningstar DBRS Confirms the Credit Ratings on the Loans of BTC Holdings Fund III LLC

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the Class A-D Loans, the Class A-R Loans, and the Class A-T Loans (together, the Loans) issued by BTC Holdings Fund III LLC, pursuant to the Credit Agreement dated July 19, 2023, entered into by BTC Holdings Fund III LLC as the Borrower; Natixis, New York Branch, as the Administrative Agent; Citibank, N.A. as the Collateral Agent; Alter Domus (US) LLC as the Collateral Administrator and Collateral Custodian; and the Lenders party thereto:

-- Class A-D Loans at AA (sf)
-- Class A-R Loans at AA (sf)
-- Class A-T Loans at AA (sf)

The credit ratings on the Loans address the timely payment of interest (excluding the Excess Interest Amounts and the additional 2% interest payable at the Post-Default Rate, as defined in the Credit Agreement) and the ultimate repayment of principal on or before the Stated Maturity (as defined in the amended Credit Agreement).

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating action is a result of Morningstar DBRS' annual review of the transaction performance by applying the "Global Methodology for Rating CLOs and Corporate CDOs" (the CLO Methodology; November 19, 2024; https://dbrs.morningstar.com/research/443207).

The Loans are collateralized primary by a portfolio of U.S. middle-market corporate loans. BTC Holdings Fund III LLC is managed by Blue Torch Credit Opportunities Fund II LP (Blue Torch Capital). Morningstar DBRS considers Blue Torch Capital to be an acceptable collateralized loan obligation (CLO) manager. The Reinvestment Period ends on July 19, 2026. The Stated Maturity is July 19, 2032.

The credit ratings reflect the following primary considerations:
(1) The Credit Agreement, dated as of July 19, 2023.
(2) The integrity of the transaction structure.
(3) Morningstar DBRS' assessment of the portfolio quality.
(4) Adequate credit enhancement to withstand projected collateral loss rates under various cash flow stress scenarios.
(5) Morningstar DBRS' assessment of the origination, servicing, and CLO management capabilities of Blue Torch Capital.

Morningstar DBRS 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 November 29, 2024, the transaction is in compliance with all performance metrics. The current transaction performance is within Morningstar DBRS' expectations, which supports the credit rating confirmations on the Loans, as per the Level I surveillance analysis in the CLO Methodology. No predictive model is utilized in the Level I surveillance process.

The coverage and collateral quality test reported values and thresholds, respectively, that Morningstar DBRS reviewed are as follows:

Advance Rate Test: Subject to Collateral Quality Matrix (CQM); actual 54.68%; threshold 57.50%
Overcollateralization Ratio Test: Subject to CQM; actual 182.87%; threshold 158.60%
Minimum DScore: Subject to CQM; actual 26.08; threshold 26.00
Minimum Morningstar DBRS Weighted Average Recovery Rate: actual 54.0%; threshold 47.5%
Maximum Morningstar DBRS Risk Score: Subject to CQM; actual 35.95%; threshold 43.80%
Minimum Weighted Average Spread: actual 7.56%; threshold 6.50%

Some particular strengths of the transaction are (1) collateral that consists of primarily U.S. senior-secured middle-market corporate loans, and (2) the adequate diversification of the portfolio of collateral obligations. Some challenges were identified: (1) 10% of the portfolio holdings may consist of First Lien Last Out or Second-Lien Loans, and (2) the underlying collateral portfolio may be insufficient to redeem the Loans in an Event of Default.

As of November 29, 2024, the Borrower is in compliance with all Coverage and Collateral Quality Tests, and there were no defaulted obligations registered in the underlying portfolio.

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 Loans.

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.

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 US dollars unless otherwise noted.

The principal methodology applicable to the credit ratings is the Global Methodology for Rating CLOs and Corporate CDOs (November 19, 2024) https://dbrs.morningstar.com/research/443207.

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.
140 Broadway, 43rd Floor
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.

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

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

Legal Criteria for U.S. Structured Finance (December 3, 2024), https://dbrs.morningstar.com/research/444064

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