DBRS Morningstar Assigns Rating to Brightwood Fund III Static 2021-1, LLC
Structured CreditDBRS, Inc. (DBRS Morningstar) assigned the following rating to 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 will be 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 will be managed by Brightwood SPV Advisors, LLC. DBRS Morningstar considers Brightwood SPV Advisors, LLC to be an acceptable collateralized loan obligation manager.
The ratings reflect 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.
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 its updated commentary, “Global Macroeconomic Scenarios: June 2021 Update,” published on June 18, 2021, DBRS Morningstar further considers additional adjustments to assumptions for the CLO asset class that consider the moderate economic scenario outlined in the commentary. After a review of the transaction’s target closing portfolio and publicly available ratings on the Collateral Obligations, DBRS Morningstar decided that the collateral credit ratings reflect the economic risk of the coronavirus, commensurate with a moderate-impact scenario.
For more information regarding DBRS Morningstar’s simplified set of macroeconomic scenarios for select economies related to the coronavirus, please see 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; and its June 18, 2021, updated commentary, “Global Macroeconomic Scenarios — June 2021 Update,” at https://www.dbrsmorningstar.com/research/380281.
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.
ESG CONSIDERATIONS
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/373262.
Notes:
All figures are in U.S. dollars unless otherwise noted.
The principal methodology is Rating CLOs and CDOs of Large Corporate Credit (February 8, 2021), 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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