DBRS Morningstar Confirms Ratings on Notes Issued by TCP DLF VIII 2018 CLO, LLC

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the Class A-1 Notes at AAA (sf), Class A-2 Notes at AA (sf), Class B at A (sf), Class C Notes at BBB (sf), Class D Notes as BB (sf), Class E Notes at B (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 Negative trend by DBRS Morningstar) as Collateral Agent, Custodian, Collateral Administrator, Information Agent, and Note Agent; and the Purchasers referred to therein.

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 payment 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 rating on the Combination Notes addresses 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 will be 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 manager.

The Combination Notes shall 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 will be 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 shall bear interest and shall receive payments in the same manner as the related Underlying Class and each Component shall 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) 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 or (2) the Stated Maturity of each Component.

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.

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 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 titled “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.

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 (DBRS Morningstar) for use in the European Union. The following additional regulatory disclosures apply to endorsed ratings:

The last rating action on this transaction took place on November 11, 2019, when DBRS Morningstar confirmed the ratings.

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: Quan Yoon, CFA, Assistant Vice President, U.S. Structured Credit
Rating Committee Chair: Jerry van Koolbergen, Managing Director, Head of 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.

DBRS, Inc.
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New York, NY 10005 USA
Tel. +1 212 806-3277

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https://www.dbrsmorningstar.com/research/364310/rating-clos-and-cdos-of-large-corporate-credit
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