Morningstar DBRS Upgrades Credit Ratings on Class A-T Loans Issued by BTC Holdings Fund II LLC

DBRS, Inc. (Morningstar DBRS) upgraded its credit ratings on the Class A-T Loans to AA (high) (sf) from AA (sf) issued by BTC Holdings Fund II LLC (the Borrower). The Class A-T Loans were issued pursuant to the Credit Agreement dated July 1, 2021 (the Credit Agreement), as amended by the First Amendment to the Credit Agreement dated September 1, 2021, the Omnibus Amendment dated April 5, 2022, the Third Amendment to the Credit Agreement dated May 27, 2022, the Fourth Amendment to the Credit Agreement, dated June 5, 2023, and as further restated on April 11, 2024 (the Restated Credit Agreement) among BTC Holdings Fund II LLC as the Borrower; Natixis, New York Branch, as Administrative Agent; Citibank, N.A. (rated AA (low) with a Stable trend by Morningstar DBRS) as Collateral Agent; Alter Domus (US) LLC as Collateral Administrator and Collateral Custodian; and the Lenders party thereto.

The credit rating on the Class A-T Loans addresses the timely payment of interest (excluding any Excess Interest Amounts as defined in the Restated Credit Agreement) and the ultimate payment of principal on or before the Final Maturity Date (as defined in the Credit Agreement).

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 15, 2023. The Stated Maturity Date is April 11, 2030. In its surveillance review, Morningstar DBRS applied the Level III approach, as described in the Global Methodology for Rating CLOs and Corporate CDOs (November 19, 2024), and incorporated the Current Profile analysis, given that the transaction is past its reinvestment period.

The Class A-T Loans issued by BTC Holdings Fund II LLC are collateralized primarily by a portfolio of U.S. middle-market corporate loans. BTC Holdings Fund II 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.

In its analysis, Morningstar DBRS considered the following aspects of the transaction:

(1) The Restated Credit Agreement, as amended from time to time.
(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 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.

Some particular strengths of the transaction are: (1) collateral quality that consists of primarily U.S. middle-market corporate loans; and (2) substantial deleveraging over the past year with strong overcollateralization as of the February 28, 2025 trustee report. Some challenges were identified: (1) the underlying collateral portfolio may be insufficient to redeem the Class A-T Loans in an Event of Default; and (2) low diversification of the portfolio of collateral obligations with the high concentration in the CCC-rated category obligations.

To account for a static pool, Morningstar DBRS analyzed the actual obligations in the pool as reported in the trustee report on February 28, 2025, which took into account the reported failures in Concentration Limitations for Largest Obligor and Sixth Largest Obligor. The Coverage Tests and triggers as well as the Collateral Quality Tests that Morningstar DBRS modelled during its analysis are presented below:

Coverage Tests
Overcollateralization (OC) Ratio: Threshold 165.80%; Current 207.04%
Interest Coverage (IC) Ratio: Threshold 135.00%; Current 411.49%

Collateral Quality Tests
Minimum Diversity Score Test: Subject to Collateral Quality Matrix: Threshold 13; Current 13.5
Maximum Morningstar DBRS Risk Score Test: Subject to Collateral Quality Matrix: Threshold 37.60%; Current 36.60%
Minimum Weighted-Average DBRS Recovery Rate Test: Threshold 47.50%; Current 54.00%
Minimum Weighted-Average Spread (WAS) Test: Threshold 6.50%; Current 8.06%

Given a static pool, Morningstar DBRS analyzed the actual obligations in the pool as opposed to a hypothetical pool, governed by the covenanted test limitations. Morningstar DBRS analyzed each loan in the pool separately by inputting its credit rating, seniority, country of origin, and industry, among others, into the Morningstar DBRS CLO Insight Model.

Morningstar DBRS analyzed the transaction using the Morningstar DBRS CLO Insight Model v1.0.1.4 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 the Morningstar DBRS Global Methodology for Rating CLOs and Corporate CDOs (November 19, 2024). Model-based analysis, which incorporated the above-mentioned Concentration Limitation breaches, produced satisfactory results. Considering the transaction performance, as well as its legal aspects and structure, Morningstar DBRS upgraded its credit rating on the Class A-T 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 transaction's 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 U.S. dollars unless otherwise noted.

The principal methodology applicable to the credit ratings are 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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to our Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of our website.]
Please, see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

This credit rating is 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 transaction took place on April 12, 2024, when Morningstar DBRS confirmed the credit rating on the Class A-T Loans.

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, US Structured Credit Ratings
Rating Committee Chair: Glen Leppert, Associate Managing Director, US Structured Credit
Initial Rating Date: July 02, 2021.

DBRS, Inc.
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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 (March 27, 2025)
https://dbrs.morningstar.com/research/450750

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.