DBRS Morningstar Confirms Ratings on MCA Fund II Holding LLC

DBRS, Inc. (DBRS Morningstar) confirmed the ratings of A (sf), BBB (sf), and BB (sf) on the Class A Notes, Class B Notes, and Class C Deferrable Notes (together, the Notes), respectively, issued by MCA Fund II Holding LLC pursuant to the Indenture dated as of June 28, 2017, between MCA Fund II Holding LLC, as Issuer, and Wells Fargo Bank, N.A. (rated AA with a Negative trend by DBRS Morningstar), as Trustee and Calculation Agent. DBRS Morningstar also confirmed the rating of A (sf) on the Liquidity Facility with MCA Fund II Holding LLC, as Issuer; Barclays Bank PLC (rated “A” with a Stable trend by DBRS Morningstar), as Liquidity Lender; and Wells Fargo Bank, N.A., as Trustee and Calculation Agent.

The ratings of the Class A Notes, Class B Notes, and Liquidity Facility address the timely payment of interest and the ultimate payment of principal on or before the Final Maturity Date (as defined in the Indenture referenced above). The rating of the Class C Deferrable Notes addresses the ultimate payment of interest and the ultimate payment of principal on or before the Final Maturity Date (as defined in the Indenture referenced above).

The ratings confirmed for the Notes and Liquidity Facility differ from the ratings implied by the quantitative model, which would have been higher than the confirmed ratings. DBRS Morningstar considers these differences to be a material deviation from the model. The reason for the material deviation on the Class A Notes and Liquidity Facility is that they are exposed to counterparty risks in the form of future capital calls that are not fully captured in the model output. The Coronavirus Disease (COVID-19) stress assumptions were considered in the modeling process for all the Notes, and the ratings confirmed for the Class B Notes and the Class C Deferrable Notes do not have material deviations from the model results.

As the coronavirus 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 adversely affected not only the economies of the nations most afflicted with the coronavirus, but also the overall global economy with diminished demand for goods and services as well as disrupted supply chains. This 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, DBRS Morningstar further considers additional adjustments to assumptions for selected industries related to the coronavirus in the collateralized fund obligation asset class. For more information regarding DBRS Morningstar’s additional adjustments for select industries related to the coronavirus, please see its May 18, 2020, commentary “CLO Risk Exposure to the Coronavirus Disease (COVID-19),” which can be found on www.dbrsmorningstar.com. The adjustment technique applied to the collateralized fund obligation asset class may differ from “CLO Risk Exposure to the Coronavirus Disease (COVID-19),” but the overall consideration of industry stress is similar.

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,” which can be found on www.dbrsmorningstar.com.

The Notes are backed by a portfolio of limited partnership interests in leveraged buyout, mezzanine debt, and venture capital private equity funds. Each class of Notes is able to withstand a percentage of tranche defaults from a Monte Carlo asset analysis commensurate with its respective rating.

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 U.S. Collateralized Fund Obligations Backed by Private Equity (November 1, 2018), 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.

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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