Morningstar DBRS Upgrades Credit Ratings on the Term Loan and Subordinated Loan of CBAM CLO Management LLC 2017-4

DBRS, Inc. (Morningstar DBRS) upgraded its credit ratings on the Term Loan to AA (low) (sf) from A (sf) and the Subordinated Loan to A (sf) from BBB (high) (sf) (together, the Loans) issued by CBAM CLO Management LLC, pursuant to the Loan and Security Agreement (LSA), dated as of December 6, 2017, as amended by Amendment No. 1 to the LSA (the Amendment), dated as of December 4, 2020, among CBAM CLO Management LLC, as Borrower, Security Benefit Life Insurance Company, as Lender, and Cortland Capital Market Services LLC, as Agent.

Morningstar DBRS' credit rating on the Term Loan addresses the ultimate payment of the Term Loan Interest Rate (excluding the Post-Default Rate) and Term Loan Deferred Interest and the ultimate payment of principal on or before the Maturity Date (all capitalized terms, as defined in the LSA). Morningstar DBRS' credit rating on the Subordinated Loan addresses the ultimate payment of the Subordinated Loan Interest Amounts (excluding the Post-Default Rate) and Subordinated Loan Deferred Interest and the ultimate payment of principal on or before the Maturity Date (all capitalized terms, as defined in the LSA).

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 transaction's Stated Maturity is January 15, 2031. The Reinvestment Period ended on January 15, 2023.

The Borrower is a special-purpose vehicle that was formed to hold the Financed Retention Securities and be the Portfolio Manager of CBAM 2017-4, Ltd. (the CLO Issuer). The Term Loan and the Subordinated Loan of the Borrower are collateralized by the Financed Retention Securities of the CLO Issuer. The Financed Retention Securities consist of (a) the principal amount of (i) $32,000,000 of the Class A Notes, (ii) $2,723,684 of the Class B-1 Notes, (iii) $3,026,316 of the Class B-2 Notes, (iv) $2,750,000 of the Class C Notes, and (v) $3,250,000 of the Class D Notes, as such terms are defined in the CLO Indenture, and (b) any CLO Notes received, or loans made to the CLO Issuer by the Borrower under a refinancing facility, in connection a Refinancing or a Re-Pricing of any Financed Retention Securities. The $500,000 Class X Notes were repaid in whole prior to the Amendment Date.

As of January 23, 2025, certain key parties to the transaction are Related Parties (as defined in the LSA). The collateral securing the Term Loan and the Subordinated Loan, the Financed Retention Securities of CBAM 2017-4, Ltd., consists of securities that were issued in connection with the collateralized loan obligation (CLO) transaction CBAM 2017-4, Ltd., where the sponsor of the transaction is CBAM Partners, LLC, now acquired by the Carlyle Group (Carlyle).

In its analysis, Morningstar DBRS also 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 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 Obligations, subject to the Eligibility Criteria, which include testing the Concentration Limitations, Collateral Quality Tests, and Coverage Tests.
(5) Morningstar DBRS' assessment of the origination, servicing, and CLO management capabilities of Delaware Life Insurance Company.
(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 90% senior-secured floating-rate broadly syndicated loans and (2) the strong diversification of underlying obligations. Some challenges were identified as follows: (1) the underlying collateral portfolio may be insufficient to redeem the Loans in an Event of Default.

In this review of the transaction, Morningstar DBRS applied a Current Profile analysis and worked with a static pool of assets that the transaction currently invests into. Morningstar DBRS analyzed the actual obligations in the pool as reported in the trustee report on January 2, 2025, which took into account the failing Weighted Average Life Test, the Rating Factor Test, the Floating Spread Test, as well the failing CCC concentration limit. The coverage and collateral quality test reported values and thresholds, respectively, that Morningstar DBRS reviewed are as follows:

Collateral Quality Tests
Minimum Floating Spread Test: threshold 3.54%; actual 3.48%
Minimum Weighted Average Recovery Rate Test: threshold 43.00%; actual 47.40%
Minimum Diversity Test: threshold 79; actual 67
Maximum Weighted-Average Life Test: threshold 2.14 years; actual 3.26 years
Maximum Rating Factor Test: threshold 2962; actual 3205

Coverage Tests
Class A/B Overcollateralization Ratio Test: threshold 122.50%; actual 153.68%
Class C Overcollateralization Ratio Test: threshold 115.50%; actual 134.69%
Class D Overcollateralization Ratio Test: threshold 108.30%; actual 117.53%
Class E Overcollateralization Ratio Test: threshold 103.70%; actual 108.00%
Class A/B Interest Coverage Ratio: Threshold 120.00%; Current 163.82%
Class C Interest Coverage Ratio: Threshold 115.00%; Current 142.23%
Class D Interest Coverage Ratio: Threshold 110.00%; Current 120.97%

As of January 2, 2025, the transaction is failing four Collateral Quality Tests: the Maximum Rating Factor Test; the Minimum Floating Spread Test; the Weighted Average Life Test, the Diversity Test; and the concentration limitation test for the maximum allocation towards CCC obligations. Failures of this nature are expected to be observed in static transactions being well into the amortization period. Morningstar DBRS analyzed each loan in the pool separately by inputting its rating, seniority, country of origin, and industry among a few into the Morningstar DBRS CLO Insight Model. There were no defaulted assets in the portfolio as of the January 2, 2025 trustee reporting date.

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 prepayments, default timings, and recovery rates, among other credit considerations referenced in the Morningstar DBRS "Global Methodology for Rating CLOs and Corporate CDOs" (November 19, 2024; https://dbrs.morningstar.com/research/443207). The analysis, which considered improved overcollateralization ratios and stronger cushion levels resulting from deleveraging that has occurred in the transaction in the past year, supported the credit rating upgrades on 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. 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 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 and the CLO Insight Model v1.0.1.4.

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.

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.