DBRS Morningstar Confirms Rating on Class A Notes Issued by TIAA Churchill Middle Market CLO II Ltd. and TIAA Churchill Middle Market CLO II LLC

DBRS, Inc. (DBRS Morningstar) confirmed its rating of AAA (sf) on the Class A Senior Secured Floating-Rate Notes (the Class A Notes) issued by TIAA Churchill Middle Market CLO II Ltd. and TIAA Churchill Middle Market CLO II LLC pursuant to the Indenture dated as of December 6, 2017, among TIAA Churchill Middle Market CLO II Ltd. as Issuer, TIAA Churchill Middle Market CLO II LLC as Co-Issuer, and The Bank of New York Mellon Trust Company, N.A. (rated AA (high) with a Stable trend by DBRS Morningstar) as Trustee.

The rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the Stated Maturity (as defined in the Indenture).

The Class A Notes issued by TIAA Churchill Middle Market CLO II Ltd. are collateralized primarily by a portfolio of U.S. middle-market corporate loans. Nuveen Alternatives Advisors LLC manages TIAA Churchill Middle Market CLO II Ltd. and TIAA Churchill Middle Market CLO II LLC. Additionally, Churchill Asset Management LLC acts as Sub-Advisor for this transaction.

The rating reflects the following:

(1) The Indenture dated December 6, 2017.
(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 (CLO) management capabilities of Nuveen Alternatives Advisors LLC as Collateral Manager and Churchill Asset Management LLC as Sub-Advisor.

To assess portfolio credit quality, DBRS Morningstar provides a credit estimate or internal assessment for each nonfinancial 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.

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: March 2021 Update,” published on March 17, 2021, DBRS Morningstar further considers additional adjustments to assumptions for the 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 WA DBRS Morningstar Risk Score of the current collateral obligation pool and compared the stressed WA Risk Score with the Maximum DBRS Morningstar Risk Scores allowed in the matrix. DBRS Morningstar observed that the matrix would allow for higher stressed DBRS Morningstar Risk Scores and therefore a higher default probability on the collateral pool, while still complying with the other Collateral Quality Tests, such as Minimum Floating Spread Test and DBRS Diversity Test. The results of this stress indicate that the Class A Notes can withstand an additional higher default stress commensurate with a moderate-scenario impact of the coronavirus.

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 March 17, 2021, updated commentary, “Global Macroeconomic Scenarios: March 2021 Update,” at https://www.dbrsmorningstar.com/research/375376.

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.

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.

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 United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:

The last rating action on this transaction took place on June 19, 2020.

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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

Lead Analyst: Quan Yoon, Vice President, U.S. Structured Credit
Rating Committee Chair: Jerry van Koolbergen, Managing Director, Head of U.S. Structured Credit
Initial Rating Date: November 6, 2017

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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-- Rating CLOs and CDOs of Large Corporate Credit and CLO Asset Model Version 2.2.3 (February 8, 2021)
https://www.dbrsmorningstar.com/research/373423/rating-clos-and-cdos-of-large-corporate-credit

-- Cash Flow Assumptions for Corporate Credit Securitizations (February 8, 2021)
https://www.dbrsmorningstar.com/research/373422/cash-flow-assumptions-for-corporate-credit-securitizations

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https://www.dbrsmorningstar.com/research/379958/interest-rate-stresses-for-us-structured-finance-transactions

-- Legal Criteria for U.S. Structured Finance (December 21, 2020)
https://www.dbrsmorningstar.com/research/371685/legal-criteria-for-us-structured-finance