DBRS Morningstar Confirms and Assigns Ratings to Brightwood Capital Fund IV SPV-3, LLC

DBRS, Inc. (DBRS Morningstar) confirmed the rating of AA (sf) to the Class A-R-1 Loans (formerly the Class A-R Loans), up to the total commitment permitted of $90,000,000, and confirmed the rating of AA (sf) to the Class A-T Loans up to the total commitment permitted of $30,000,000, issued by Brightwood Capital Fund IV SPV-3, LLC (the Borrower). DBRS Morningstar has also assigned a rating of AA (sf) to the Class A-R-2 Loans up to the total commitment permitted of $40,000,000 (the Class A-R-2 Loans; together with the Class A-R-1 Loans and the Class A-T Loans, the Class A Loans or the Loans) issued by the Borrower.

The Class A Loans were issued pursuant to the Credit Agreement dated as of February 12, 2019 (as amended by Amendment No. 1 to Credit Agreement, dated as of July 26, 2019; as further amended by Amendment No. 2 to Credit Agreement, dated as of September 11, 2019; and as further amended by Amendment No. 3 to Credit Agreement, dated as of December 27, 2019), among the Borrower, the Lenders referred to therein, Barclays Bank PLC, New York Branch as Facility Agent and U.S. Bank National Association (rated AA (high) with a Stable trend by DBRS Morningstar) as Collateral Agent and Custodian.

The rating confirmations on the Class A-R-1 Loans and on the Class A-T Loans and the assignment of the new rating on the Class A-R-2 Loans reflect the execution of Amendment No. 3 to Credit Agreement, dated as of December 27, 2019, among the Borrower, the Lenders referred to therein, Barclays Bank PLC, New York Branch as Facility Agent, U.S. Bank National Association as Collateral Agent and Custodian as well as Brightwood SPV Advisors, LLC as Collateral Manager.

The ratings on the Loans address the timely payment of interest and the ultimate payment of principal on or before the Stated Maturity (as defined in the Credit Agreement).

The Class A Loans issued by the Borrower will be collateralized primary by a portfolio of U.S. middle-market corporate loans. The Borrower will be managed by Brightwood SPV Advisors, LLC, which is 100% equity owned by Brightwood Capital Advisors, LLC. DBRS Morningstar considers Brightwood SPV Advisors, LLC to be an acceptable collateralized loan obligation (CLO) manager.

The ratings reflect the following:

(1) The Credit Agreement dated February 12, 2019 (as amended by Amendment No. 1 to Credit Agreement, dated July 26, 2019; Amendment No. 2 to Credit Agreement dated September 11, 2019; and Amendment No. 3 to Credit Agreement, dated December 27, 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.

(5) DBRS Morningstar’s assessment of the origination, servicing, and CLO management capabilities of Brightwood SPV Advisors, LLC and Brightwood Capital 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 that is 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 (EOD), the Collateral Agent may be directed by the Majority Lenders (as defined in the Credit Agreement) to sell or otherwise dispose of the Collateral as a remedy, which could subject the Class A Loans to additional downgrade risk and/or default risk. These EODs include an Overcollateralization Ratio less than or equal to 125.0%.

Additionally, under the Credit Agreement, upon the occurrence and during the continuance of an EOD, the Facility Agent or the Majority Lenders 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 of the Credit Agreement, in which amounts due to the Class A Loans will include additional Post-Default Rate Interest Amounts and Additional Payment Amounts (as defined in the Credit Agreement). Thus, the rating assigned to the Class A Loans could be subject to downgrade as a result of any EOD and subsequent movement to Section 6.4.

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

The principal methodology is Rating CLOs and CDOs of Large Corporate Credit, which can be found on dbrs.com under Methodologies & Criteria.

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 European Union. The following additional regulatory disclosures apply to endorsed ratings:

This rating concerns a newly issued financial instrument. This is the first DBRS Morningstar rating on this financial instrument.

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: Leila Manii, Assistant Vice President, U.S. Structured Credit
Rating Committee Chair: Jerry van Koolbergen, Managing Director, U.S. Structured Credit
Initial Rating Date: July 30, 2019

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

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