DBRS Morningstar Assigns Provisional Ratings on the Advances Issued by TPR Funding 2022-1, LLC

DBRS, Inc. (DBRS Morningstar) assigned the following provisional ratings on the Class A-1 Advance, the Class A-2 Advance, the Class B Advance, the Class C Advance, the Class D Advance, and the Class E Advance (together, the Advances) issued by TPR Funding 2022-1, LLC pursuant to the Loan, Security and Servicing Agreement, dated as of December 15, 2022 (the Loan Agreement), entered into by and among TPR Funding 2022-1, LLC as the Borrower; Delaware Life Insurance Company as the Servicer; Capital One, National Association (rated “A” with a Stable trend by DBRS Morningstar) as the Administrative Agent, Hedge Counterparty and Arranger; Citibank, N.A. (rated AA (low) with a Stable trend by DBRS Morningstar) as Collateral Custodian and Document Custodian; Virtus Group, LP as Collateral Administrator; and each of the Lenders and Subordinated Lenders from time to time party thereto:

-- Class A-1 Advance: AA (sf)
-- Class A-2 Advance: AA (low) (sf)
-- Class B Advance: A (low) (sf)
-- Class C Advance: BBB (low) (sf)
-- Class D Advance: BB (low) (sf)
-- Class E Advance: B (low) (sf)

The provisional rating on the Class A-1 Advance addresses the timely payment of interest (other than Interest attributable to Excess Interest Amounts, as defined in the Loan Agreement referred to above) and the ultimate payment of principal on or before the Facility Maturity Date (as defined in the Loan Agreement referred to above).

The provisional ratings on the Class A-2 Advance, the Class B Advance, the Class C Advance, the Class D Advance, and the Class E Advance address the ultimate payment of interest (other than Interest attributable to Excess Interest Amounts, as defined in the Loan Agreement referred to above) and the ultimate payment of principal on or before the Facility Maturity Date (as defined in the Loan Agreement referred to above).

The Advances are collateralized primarily by a portfolio of U.S. middle-market corporate loans. The servicer for TPR Funding 2022-1, LLC is Delaware Life Insurance Company. DBRS Morningstar considers Delaware Life Insurance Company to be an acceptable collateralized loan obligation (CLO) servicer.

RATING RATIONALE
In its analysis, DBRS Morningstar considered the following aspects of the transaction:

(1) The transaction’s capital structure and the form and sufficiency of available credit enhancement.
(2) Relevant credit enhancement in the form of subordination and excess spread.
(3) The ability of the Advances to withstand projected collateral loss rates under various cash flow stress scenarios.
(4) The credit quality of the underlying collateral and the ability of the transaction to reinvest Principal Proceeds into new Collateral Obligations, subject to the Eligibility Criteria, which include testing the Concentration Limitations, Collateral Quality Tests, and Coverage Tests.
(5) DBRS Morningstar’s assessment of the origination, servicing, and CLO management capabilities of Delaware Life Insurance Company.
(6) The legal structure as well as legal opinions addressing certain matters of the Borrower and the consistency with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance” methodology.

The Scheduled Revolving Period End Date is December 15, 2025. The Facility Maturity Date is December 15, 2032.

The transaction has a dynamic structural configuration that permits variations of certain asset metrics via a selection of an applicable row from a collateral quality matrix (the CQM, as defined in Schedule V of the Loan Agreement). Depending on a given Diversity Score, the following metrics are selected accordingly from the applicable row of the CQM: DBRS Morningstar Risk Score and Weighted-Average Spread. DBRS Morningstar analyzed each structural configuration as a unique transaction, and all configurations (matrix points) passed the applicable DBRS Morningstar rating stress levels. The Coverage Tests and triggers as well as the Collateral Quality Tests that DBRS Morningstar modeled during its analysis are presented below.

(1) Class A-1 Overcollateralization Ratio Test: 142.86%
(2) Class A-2 Junior Overcollateralization Ratio Test: 138.15%
(3) Class B Junior Overcollateralization Ratio Test: 118.21%
(4) Class C Junior Overcollateralization Ratio Test: 113.21%
(5) Class D Junior Overcollateralization Ratio Test: 106.68%
(6) Class E Junior Overcollateralization Ratio Test: 103.70%
(7) Maximum Weighted-Average Life Test: 6.00
(8) Minimum Diversity Test: Subject to CQM; 20
(9) Maximum DBRS Morningstar Risk Score Test: Subject to CQM; 41.27%
(10) Minimum Weighted-Average DBRS Morningstar Recovery Rate Test: 51.90%
(11) Minimum Weighted-Average Spread Test: Subject to CQM; 4.25%
(12) Minimum Weighted-Average Coupon Test: 6.00%

Some particular strengths of the transaction are (1) the collateral quality, which will consist mostly of senior-secured middle-market loans; and (2) the expected adequate diversification of the portfolio of collateral obligations (Diversity Score, matrix driven).

Some challenges were identified: (1) the expected weighted-average credit quality of the underlying obligors may fall below investment grade (per the CQM), and the majority may not have public ratings once purchased, and (2) the underlying collateral portfolio may be insufficient to redeem the Advances in an Event of Default.

DBRS Morningstar modeled the transaction using the DBRS Morningstar CLO Asset Model and its proprietary cash flow engine, which incorporated assumptions regarding principal amortization, amount of interest generated, default timings, and recovery rates, among other credit considerations referenced in the DBRS Morningstar rating methodology “Cash Flow Assumptions for Corporate Credit Securitizations.” Model-based analysis produced satisfactory results, which supported the assignment of the provisional ratings on the Advances.

Considering the transaction structure, its legal aspects, and the results produced by the models, DBRS Morningstar assigned the provisional ratings specified above on each class of Advances issued by TPR Funding 2022-1, 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 DBRS Morningstar uses when rating the Advances.

The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: September 2022 Update,” published on September 19, 2022 (https://www.dbrsmorningstar.com/research/402907). These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.

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

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

Notes:
The principal methodologies are Rating CLOs and CDOs of Large Corporate Credit (January 26, 2022) and Cash Flow Assumptions for Corporate Credit Securitizations (January 26, 2022), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereigns group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts with the baseline scenarios set forth in the following report:
https://www.dbrsmorningstar.com/research/384482.

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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