DBRS Morningstar Confirms Ratings on Notes Issued by BlackRock DLF IX 2019-G CLO, LLC

DBRS, Inc. (DBRS Morningstar) confirmed its ratings of AAA (sf) on the Class A-1 Notes, AA (sf) on the Class A-2 Notes, A (sf) on the Class B Notes, BBB (sf) on the Class C Notes, BB (sf) on the Class D Notes, B (sf) on the Class E Notes (together, the Secured Notes), and BBB (low) (sf) on the Combination Notes issued by BlackRock DLF IX 2019-G CLO, LLC (the Issuer), pursuant to the Note Purchase and Security Agreement (NPSA) dated as of October 16, 2019, among the Issuer; U.S. Bank National Association (rated AA (high) with a Negative trend by DBRS Morningstar) as the Collateral Agent, Custodian, Document Custodian, Collateral Administrator, Information Agent, and Note Agent; and the Purchasers referred to therein.

The ratings on the Class A-1 and A-2 Notes address the timely payment of interest (excluding the interest payable at the Post-Default Rate, as defined in the NPSA referred to above) and the ultimate payment of principal on or before the Stated Maturity of October 16, 2029. The ratings on the Class B, C, D, and E Notes address the ultimate payment of interest (excluding the interest payable at the Post-Default Rate, as defined in the NPSA referred to above) and the ultimate payment of principal on or before the Stated Maturity of October 16, 2029.

The rating on the Combination Notes addresses the ultimate repayment of the Combination Note Rated Principal Balance (which is equal to the Commitment amount for the Combination Notes) on or before the Stated Maturity of October 16, 2029. The Combination Notes have no stated coupon. The Components of the Combination Notes include portions of the Class A-2, B, C, D, and E Notes and the Subordinated Notes (or equity) of the Issuer.

All interest and principal amounts paid on the Secured Notes and any distributions made to the Subordinated Notes are the only sources of payment for the Combination Notes. All payments made on the Component Notes (whether interest, principal, or otherwise) to the Combination Notes shall reduce the Combination Note Rated Principal Balance. The Combination Notes shall remain outstanding until the earlier of (1) the payment in full and redemption of each Component and (2) the Stated Maturity of each Component.

The principal methodology used to rate the Secured Notes and Combination Notes is “Rating CLOs and CDOs of Large Corporate Credit,” which can be found on dbrsmorningstar.com under Methodologies & Criteria. DBRS Morningstar stressed the Combination Notes by applying the BBB (low) stress scenario under the “Rating CLOs and CDOs of Large Corporate Credit” methodology to the loans securing the Component Notes.

The notes are collateralized primarily by a portfolio of U.S. middle-market corporate loans. The Issuer will be managed by BlackRock Capital Investment Advisors, LLC (BCIA), which is a wholly owned subsidiary of BlackRock, Inc. DBRS Morningstar considers BCIA to be an acceptable collateralized loan obligation (CLO) manager.

The ratings reflect the following:

(1) The NPSA dated as of October 16, 2019;
(2) The integrity of the transaction structure;
(3) DBRS Morningstar’s assessment of the portfolio quality;
(4) Adequate credit enhancement to withstand projected collateral loss rates under various cash flow stress scenarios; and
(5) DBRS Morningstar’s assessment of the origination, servicing, and CLO management capabilities of BCIA.

To assess portfolio credit quality, DBRS Morningstar provides a credit estimate or internal assessment for each nonfinancial corporate obligor in the portfolio that DBRS Morningstar doesn’t already rate. Credit estimates are not ratings; rather, they represent a model-driven default probability for each obligor that help when rating a facility.

In conjunction with DBRS Morningstar’s commentary, “Global Macroeconomic Scenarios: September Update,” published on September 10, 2020, DBRS Morningstar further considers additional adjustments to assumptions for the collateralized loan obligation (CLO) asset class that consider the moderate economic scenario outlined in the commentary. The adjustments include a higher default assumption for the weighted-average (WA) credit quality of the current collateral obligation portfolio. To derive the higher default assumption, DBRS Morningstar notches ratings for obligors in certain industries and obligors at various rating levels based on their perceived exposure to the adverse disruptions caused by the coronavirus. Considering a higher default assumption would result in losses that exceed the original default expectations for the affected classes of notes. DBRS Morningstar may adjust the default expectations further if there are changes in the duration or severity of the adverse disruptions.

For CLOs, DBRS Morningstar ran an additional higher default adjustment on the WA DBRS Morningstar Risk Score of the current collateral obligation pool and then ran this adjusted modeling pool through the DBRS Morningstar CLO Asset Model to generate a stressed default rate. DBRS Morningstar then performed a cash flow model analysis to determine the breakeven default rate for the rated debt. The breakeven default rate is computed over nine combinations of default timing and interest rate stresses. The breakeven default rate must exceed the lifetime total default rate generated by the DBRS Morningstar CLO Asset Model for the debt to achieve the rating. The results of this adjustment indicate that the Secured Notes and Combination Notes can withstand an additional higher default stress commensurate with a moderate-scenario impact of the coronavirus pandemic.

For more information regarding DBRS Morningstar’s simplified set of macroeconomic scenarios for select economies related to the coronavirus, please see its April 16, 2020, commentary “Global Macroeconomic Scenarios: Implications for Credit Ratings” at https://www.dbrsmorningstar.com/research/359679; its April 22, 2020, commentary “Global Macroeconomic Scenarios: Application to Credit Ratings” at https://www.dbrsmorningstar.com/research/359903; its July 22, 2020, updated commentary, “Global Macroeconomic Scenarios: July Update” at https://www.dbrsmorningstar.com/research/364318; and its September 10, 2020, updated commentary “DBRS Morningstar: Global Macroeconomic Scenarios: September Update” at https://www.dbrsmorningstar.com/research/366543 copies of which have been included with this correspondence.

For more information regarding DBRS Morningstar’s additional adjustment for select industries related to the coronavirus, please see its May 18, 2020, commentary, “CLO Risk Exposure to the Coronavirus Disease (COVID-19).”

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
The principal methodology is Rating CLOs and CDOs of Large Corporate Credit (July 21, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

This rating is endorsed by DBRS Ratings Limited (DBRS Morningstar) for use in the European Union. The following additional regulatory disclosures apply to endorsed ratings:

This is the first rating action since the Initial Rating Date.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Lead Analyst: Quan Yoon, CFA, Assistant Vice President, U.S. Structured Credit
Rating Committee Chair: Jerry van Koolbergen, Managing Director, Head of U.S. Structured Credit
Initial Rating Date: October 17, 2019.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277

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https://www.dbrsmorningstar.com/research/364310/rating-clos-and-cdos-of-large-corporate-credit
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