DBRS Morningstar Upgrades and Confirms Ratings on Notes Issued by TCP DLF VIII 2018 CLO, LLC and Discontinues Rating on Combination Notes

DBRS, Inc. (DBRS Morningstar) upgraded the ratings on the Class A-2 Notes to AA (high) (sf) from AA (sf), Class B Notes to A (high) (sf) from A (sf), Class C Notes to BBB (high) (sf) from BBB (sf), Class D Notes to BB (high) (sf) from BB (sf), and the Class E Notes to B (high) (sf) from B (sf) and confirmed the ratings on the Class A-1 Notes at AAA (sf) and the Combination Notes at BBB (low) (sf) (collectively, the Notes) issued by TCP DLF VIII 2018 CLO, LLC (the Issuer) pursuant to the Note Purchase and Security Agreement dated as of February 28, 2018, among TCP DLF VIII 2018 CLO, LLC as Issuer; U.S. Bank National Association (rated AA (high) with a Stable trend by DBRS Morningstar) as Collateral Agent, Custodian, Collateral Administrator, Information Agent, and Note Agent; and the Purchasers referred to therein. DBRS Morningstar subsequently discontinued and withdrew the BBB (low) (sf) rating on the Combination Notes at the request of the Issuer.

The ratings on the Class A-1 Notes and Class A-2 Notes address the timely payment of interest (excluding the additional 1% of interest payable at the Post-Default Rate as defined in the Note Purchase and Security Agreement) and the ultimate repayment of principal on or before the Stated Maturity (as defined in the Note Purchase and Security Agreement). The ratings on the Class B Notes, Class C Notes, Class D Notes, and Class E Notes address the ultimate payment of interest (excluding the additional 1% of interest payable at the Post-Default Rate as defined in the Note Purchase and Security Agreement) and the ultimate payment of principal on or before the Stated Maturity (as defined in the Note Purchase and Security Agreement). The Class A-2 Notes, Class B Notes, Class C Notes, Class D Notes, and Class E Notes were upgraded because of the decreasing weighted-average life and resulting increased cushion between the Stressed Portfolio Default Rate and Hurdle Rate for each rating level.

The rating on the Combination Notes addressed the ultimate repayment of the Combination Note Rated Principal Balance (as defined in the Note Purchase and Security Agreement) on or before the Stated Maturity (as defined in the Note Purchase and Security Agreement). The Combination Notes have no stated coupon.

The Notes issued by the Issuer are collateralized primarily by a portfolio of U.S. middle-market corporate loans. The Issuer will be managed by Series I of SVOF/MM, LLC (the Collateral Manager), a consolidated subsidiary of Tennenbaum Capital Partners, LLC, which is itself a wholly owned subsidiary of BlackRock, Inc. DBRS Morningstar considers Series I of SVOF/MM, LLC to be an acceptable collateralized loan obligation (CLO) manager.

The Combination Notes consist of a portion of the principal amount (the Components) of the initial original principal amounts of each of the Class A-2 Notes, Class B Notes, Class C Notes, Class D Notes, Class E Notes, and Subordinated Notes (the Underlying Classes). Each Component of the Combination Notes is treated as Notes of the respective Underlying Class. Payments on any Underlying Class shall be allocated to the relevant Combination Notes in the proportion that the outstanding principal amount of the applicable Component bears to the outstanding principal amount of such Underlying Class as a whole (including all related Components). Each Component of the Combination Notes bears interest and shall receive payments in the same manner as the related Underlying Class and each Component mature and be payable on the Stated Maturity in the same manner as the related Underlying Class.

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) 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 or (2) the Stated Maturity of each Component.

The Combination Notes were rated by applying the methodology “Rating CLOs and CDOs of Large Corporate Credit” to the loans securing the Component Notes.

To assess portfolio credit quality, DBRS Morningstar provides a credit estimate or internal assessment for each nonfinancial 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.

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.

The DBRS Morningstar Sovereigns group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the following report: https://www.dbrsmorningstar.com/research/384150.

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): https://www.dbrsmorningstar.com/research/361112.

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 September 30, 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, U.S. Structured Credit
Rating Committee Chair: Jerry van Koolbergen, Managing Director, U.S. Structured Credit
Initial Rating Date: February 28, 2018

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

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https://www.dbrsmorningstar.com/research/373423/rating-clos-and-cdos-of-large-corporate-credit

-- Cash Flow Assumptions for Corporate Credit Securitizations (February 8, 2021),
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-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 10, 2021),
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-- Legal Criteria for U.S. Structured Finance (December 21, 2020),
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