DBRS Morningstar Confirms Rating on Loans of Brightwood Fund III Static 2021-1, LLC

DBRS, Inc. (DBRS Morningstar) confirmed the following rating on the Loans (original par of $180,000,000) issued by Brightwood Fund III Static 2021-1, LLC (the Borrower), pursuant to the Credit Agreement dated as of June 30, 2021, among the Borrower, the Lenders referred to therein, U.S. Bank National Association (rated AA (high) with a Stable trend by DBRS Morningstar) as Collateral Agent, Custodian, and Administrative Agent:

-- The Loans at AA (sf)

The rating on the 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 referred to above).

The Loans issued by Brightwood Fund III Static 2021-1, LLC 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. Brightwood Fund III Static 2021-1, LLC is managed by Brightwood SPV Advisors, LLC. DBRS Morningstar considers Brightwood SPV Advisors, LLC to be an acceptable collateralized loan obligation manager.

The rating reflects the following primary considerations:
(1) The Credit Agreement dated June 30, 2021.
(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.
(5) DBRS Morningstar’s assessment of the origination, servicing, and collateralized loan obligation management capabilities of Brightwood SPV Advisors, LLC.

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 ratings to a facility.

Under the Credit Agreement, upon the occurrence and during the continuance of an Event of Default, the Administrative Agent or a Majority 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 rating assigned to the Loans is 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.

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.

There were no Environmental, Social, or Governance factors that had a significant or relevant effect on the credit analysis. 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/396929.

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

The principal methodologies are Rating CLOs and CDOs of Large Corporate Credit (January 26, 2022) and Cash Flow Assumptions for Corporate Credit Securitizations (January 26, 2022), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

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

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.

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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