DBRS Morningstar Confirms Ratings on Notes Issued by TCP Rainier, LLC

DBRS, Inc. (DBRS Morningstar) confirmed the ratings of A (low) (sf) on the Class A Notes, BBB (sf) on the Class B Notes, and BB (sf) on the Class C Notes (collectively, the Notes) as well as the provisional rating of BBB (low) (sf) on the Combination Notes issued by TCP Rainier, LLC (TCP or the Issuer), pursuant to the Note Purchase and Security Agreement (NPSA) dated as of December 11, 2018 (and as further amended by the First Amendment dated as of July 2, 2019, and effective as of July 25, 2019, and by the Second Amendment dated as of February 28, 2020; together, the Amendments), among TCP as Issuer; U.S. Bank National Association (USB; rated AA (high) with a Stable trend by DBRS Morningstar) as Collateral Agent, Custodian, Document Custodian, Collateral Administrator, Information Agent, and Note Agent; and the Purchasers referred to therein.

The rating on the Class A Notes addresses the timely payment of interest (excluding the additional 1% of interest payable at the Post-Default Rate as defined in the NPSA) and the ultimate payment of principal on or before the Stated Maturity of December 11, 2027. The ratings on the Class B Notes and Class C Notes address the ultimate payment of interest (excluding the additional 1% of interest payable at the Post-Default Rate as defined in the NPSA) and the ultimate payment of principal on or before the Stated Maturity of December 11, 2027. The provisional rating on the Combination Notes addresses the ultimate repayment of the Combination Note Rated Principal Balance (which is equal to the commitment amount for the Combination Notes) on or before the Stated Maturity of December 11, 2027. The Combination Notes have no stated coupon. The Components of the Combination Notes include portions of the Class A Notes, Class B Notes, and Class C Notes as well as the Subordinated Notes (or equity) of the Issuer.

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) to the Combination Notes 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 and (2) the Stated Maturity of each Component.

As of the Closing Date, the Second Amendment, and this confirmation date, DBRS Morningstar’s rating on the Combination Notes will be provisional. The provisional rating reflects the fact that the effectiveness of the Combination Notes are subject to certain conditions after the Closing Date and Second Amendment, and this confirmation date, such as a drawing order. It is expected that the Combination Notes will be funded in tandem with, and in proportion to, each Underlying Class but that the Combination Notes will not become effective until each of the Subordinated Notes and other Secured Notes are funded in reverse-sequential order. The finalization of the provisional rating on the Combination Notes will be subject to satisfaction of certain conditions, as specified in the NPSA, including, but not limited to, the remaining unfunded commitments of the Class A Notes, the Class B Notes, and the Class C Notes being reduced to zero. The provisional rating on the Combination Notes may not be finalized if the other Secured Notes fail to be fully drawn.

The Combination Notes were stressed by applying the BBB (low) stress scenario under the “Rating CLOs and CDOs of Large Corporate Credit” methodology to the loans securing the Component Notes.

The Notes will be collateralized primarily by a portfolio of U.S. middle-market corporate loans. The Issuer is managed by Series I of SVOF/MM, LLC, 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 confirmation of the ratings reflects the following:

(1) The NPSA dated as of December 11, 2018, and as further amended by the Amendments;
(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; and
(5) DBRS Morningstar’s assessment of the origination, servicing, and CLO management capabilities of Series I of SVOF/MM, LLC.

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.

Under the NPSA, following an Event of Default and the acceleration of the Obligations, the Controlling Parties (as defined in the NPSA) may direct the Collateral Agent to sell all or any portion of the Collateral to the Controlling Parties or any Affiliate of the Controlling Parties, without soliciting or accepting bids therefore from any Person, at the Market Value of such Collateral, which may be at the disadvantage of the other non–Controlling Parties.

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.

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 updated on July 22, 2020 and September 10, 2020, DBRS Morningstar further considers additional adjustments to assumptions for the collateralized loan obligations (CLO) asset class that consider the moderate economic scenario outlined in the commentary. The adjustments include a higher default assumption for the weighted-average (WA) credit quality of the current collateral obligation portfolio. To derive the higher default assumption, DBRS Morningstar notches ratings for obligors in certain industries and obligors at various rating levels based on their perceived exposure to the adverse disruptions caused by the coronavirus. Considering a higher default assumption would result in losses that exceed the original default expectations for the affected classes of notes. DBRS Morningstar may adjust the default expectations further if there are changes in the duration or severity of the adverse disruptions.

For CLOs, DBRS Morningstar ran an additional higher default adjustment on the weighted-average DBRS Morningstar Risk Score of the current collateral obligation pool, and this adjusted modelling pool was run through the DBRS Morningstar CLO Asset Model to generate a stressed default rate. DBRS Morningstar then performed a cash flow model analysis to determine the breakeven default rate for the rated debt. The breakeven default rate is computed over nine combinations of default timing and interest rate stresses. The breakeven default rate must exceed the lifetime total default rate generated by the DBRS Morningstar CLO Asset Model for the debt in order to achieve the rating. The results of this adjustment indicate that the Notes can withstand an additional higher default stress commensurate with a moderate-scenario impact of the coronavirus pandemic.

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” 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 July 22, 2020, updated commentary, “Global Macroeconomic Scenarios: July Update” at
https://www.dbrsmorningstar.com/research/364318; and its September 10, 2020, updated commentary “DBRS Morningstar: Global Macroeconomic Scenarios: September Update” at
https://www.dbrsmorningstar.com/research/366543.

For more information regarding DBRS Morningstar’s additional adjustment for select industries related to the coronavirus, please see the May 18, 2020, commentary titled “CLO Risk Exposure to the Coronavirus Disease (COVID-19)” at https://www.dbrsmorningstar.com/research/361112/clo-risk-exposure-to-the-coronavirus-disease-covid-19.

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

The principal methodology is Rating CLOs and CDOs of Large Corporate Credit (July 21, 2020), 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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