DBRS Morningstar Confirms the Ratings on the Loans Issued by Brightwood Fund III Static 2018-1, LLC, Removes Under Review with Negative Implications Status

DBRS, Inc. (DBRS Morningstar) confirmed the AAA (sf) rating on the Class A Loans issued by Brightwood Fund III Static 2018-1, LLC (the Borrower) up to the Total Class A Commitment of $404,200,000 (the Class A Loans. DBRS Morningstar has also upgraded the rating from A (high)(sf) to AA (sf) on the Class B Loans issued by the Borrower up to the Total Class B Commitment of $40,000,000 (the Class B Loans), and has upgraded the rating from A (sf) to AA (low)(sf) on the Class C Loans issued by the Borrower up to the Total Class C Commitment of $12,700,000 (the Class C Loans). DBRS Morningstar has also removed the Under Review with Negative Implications status on the Class B Loans and the Class C Loans (together, with the Class A Loans and the Class B Loans, the Loans).

The Loans are collateralized primarily by a portfolio of U.S. middle-market corporate loans. This portfolio is static in nature and does not allow for reinvestment.

The rating on the Class A Loans addresses the timely payment of interest (excluding any Excess Interest Amounts, as defined in the Credit Agreement referred to above) and the ultimate payment of principal on or before the Stated Maturity (as defined in the Credit Agreement). The ratings on the Class B Loans and the Class C Loans address the ultimate payment of interest (excluding the respecting Class B Deferred Interest, Class C Deferred Interest, and any Excess Interest Amounts, as defined in the Credit Agreement) and the ultimate payment of principal on or before the Stated Maturity (as defined in the Credit Agreement).

To assess portfolio credit quality, DBRS Morningstar provides a credit estimate or internal assessment for each non-financial corporate obligor in the portfolio not rated by DBRS Morningstar. Credit estimates are not ratings; rather, they represent a model-driven default probability for each obligor that is used in assigning a rating to the facility.

Under the Credit Agreement, upon the occurrence and during the continuance of an Event of Default, the Administrative Agent may be directed by a Majority of the Controlling Class (as defined in the Credit Agreement referred to above) to sell or otherwise dispose of the Collateral as a remedy, which could disadvantage the Class B Loans and Class C Loans. Thus, the ratings assigned on the Class B Loans and Class C Loans are subject to additional downgrade risk and/or default for nonpayment.

Additionally, under the Credit Agreement, upon the occurrence and during the continuance of an Event of Default, the Administrative Agent or a Majority of the Controlling Class may declare the principal and interest on all amounts payable by the Borrower due and payable. Upon that declaration, all proceeds received by the Borrower will be applied in accordance with Section 6.4, in which amounts due to the Loans will include additional Excess Interest Amounts and Increased Costs (as defined in the Credit Agreement referred to above). Thus, the ratings assigned to the Class A Loans, Class B Loans, and Class C Loans are subject to downgrades as a result of these additional Excess Interest Amounts in the event of any Event of Default and movement to Section 6.4.

As the Coronavirus Disease (COVID-19) spread around the world, certain countries imposed quarantines and lockdowns, including the United States, which accounts for more than one fourth of confirmed cases worldwide. The coronavirus pandemic has negatively affected not only the economies of the nations most afflicted, but also the overall global economy with diminished demand for goods and services as well as disrupted supply chains. The effects of the pandemic may result in deteriorated financial conditions for many companies and obligors, some of which will experience the effects of such negative economic trends more than others. At the same time, governments and central banks in multiple regions, including the United States and Europe, have taken significant measures to mitigate the economic fallout from the coronavirus pandemic.

In conjunction with DBRS Morningstar’s commentary, “Global Macroeconomic Scenarios: Implications for Credit Ratings,” published on April 16, 2020, and its updated commentary, “Global Macroeconomic Scenarios: March 2021 Update,” published on March 17, 2021, DBRS Morningstar further considers additional adjustments to assumptions for the CLO asset class that consider the moderate economic scenario outlined in the commentary. After a review of the transaction’s target closing portfolio and publicly available ratings on the Collateral Obligations, DBRS Morningstar decided that the collateral credit ratings reflect the economic risk of the coronavirus, commensurate with a moderate-impact scenario.

For more information regarding DBRS Morningstar’s simplified set of macroeconomic scenarios for select economies related to the coronavirus, please see 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 January 28, 2021, updated commentary, “Global Macroeconomic Scenarios: January 2021 Update,” at https://www.dbrsmorningstar.com/research/372842; and its March 17, 2021, updated commentary, “Global Macroeconomic Scenarios: March 2021 Update,” at https://www.dbrsmorningstar.com/research/375376/global-macroeconomic-scenarios-march-2021-update.

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),” at https://www.dbrsmorningstar.com/research/361112.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating CLOs and CDOs of Large Corporate Credit (February 8, 2021), 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 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 ratings:

The last rating action on this transaction took place on October 15, 2020.

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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

Lead Analyst: Quan Yoon, CFA, Vice President
Rating Committee Chair: Jerry van Koolbergen, Managing Director
Initial Rating Date: July 18, 2018

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

DBRS, Inc.
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New York, NY 10005 USA
Tel. +1 212 806-3277

-- Rating CLOs and CDOs of Large Corporate Credit and DBRS CLO Asset Model Version 2.2.3 (February 8, 2021),
https://www.dbrsmorningstar.com/research/373423/rating-clos-and-cdos-of-large-corporate-credit

-- Cash Flow Assumptions for Corporate Credit Securitizations (February 8, 2021),
https://www.dbrsmorningstar.com/research/373422/cash-flow-assumptions-for-corporate-credit-securitizations

-- Operational Risk Assessment for Collateralized Loan Obligation (CLO) and Collateralized Debt Obligation (CDO) Managers of Large Corporate Credits (September 22, 2020),
https://www.dbrsmorningstar.com/research/366977/operational-risk-assessment-for-collateralized-loan-obligation-clo-and-collateralized-debt-obligation-cdo-managers-of-large-corporate-credits

-- Interest Rate Stresses for U.S. Structured Finance Transactions (October 23, 2020),
https://www.dbrsmorningstar.com/research/368786/interest-rate-stresses-for-us-structured-finance-transactions

-- Legal Criteria for U.S. Structured Finance (December 21, 2020),
https://www.dbrsmorningstar.com/research/371685/legal-criteria-for-us-structured-finance