DBRS Morningstar Confirms Ratings on Notes Issued by BlackRock DLF IX 2019-G CLO, LLC

DBRS, Inc. (DBRS Morningstar) confirmed its ratings of AAA (sf) on the Class A-1 Notes, AA (sf) on the Class A-2 Notes, A (high) (sf) on the Class B Notes, A (sf) on the Class C Notes, BBB (sf) on the Class D Notes, BB (sf) on the Class E Notes (together, the Secured Notes) issued by BlackRock DLF IX 2019-G CLO, LLC (the Issuer) and also confirmed its rating of B (sf) on the Issuer’s Class W Notes (together with the Secured Notes, the Notes) pursuant to the Amended and Restated Note Purchase and Security Agreement (the NPSA) dated as of December 23, 2020, among the Issuer; U.S. Bank National Association (rated AA (high) with a Stable trend by DBRS Morningstar) as the Collateral Agent, Custodian, Document Custodian, Collateral Administrator, Information Agent, and Note Agent; and the Purchasers referred to therein.

The ratings on the Class A-1 and A-2 Notes address the timely payment of interest (excluding the 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 October 16, 2029. The ratings on the Class B, C, D, E, and W Notes address the ultimate payment of interest (excluding the 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 October 16, 2029.

The Notes are collateralized primarily by a portfolio of U.S. middle-market corporate loans. The Issuer is managed by BlackRock Capital Investment Advisors, LLC (BCIA), which is a wholly owned subsidiary of BlackRock, Inc. DBRS Morningstar considers BCIA to be an acceptable collateralized loan obligation (CLO) manager.

RATING RATIONALE

The rating action is a result of the annual surveillance review of the transaction. DBRS Morningstar confirmed the rating on the Secured Notes because the current transaction performance is within DBRS Morningstar’s expectation. The Reinvestment Period ends on October 16, 2023. The Stated Maturity is October 16, 2029.

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 Secured Notes 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 BCIA.
(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 Legal Criteria).

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 G of the NPSA). Depending on a given Diversity Score (DScore), the following metrics are selected accordingly from the applicable row of the CQM: DBRS Morningstar Risk Score, Advance Rate, Weighted Average Recovery Rate (WARR), and Weighted Average Spread (WAS) Level. DBRS Morningstar analyzed each structural configuration as a unique transaction, and all configurations (rows) passed the applicable DBRS Morningstar rating stress levels. The Coverage Tests and triggers as well as the Collateral Quality Tests that DBRS Morningstar modeled in its base case analysis are presented below.

(1) Class A-2 OC: 143.97%
(2) Class B OC: 132.18%
(3) Class C OC: 125.71%
(4) Class D OC: 119.01%
(5) Class E OC: 110.28%
(6) WAS: 5.75%
(7) DBRS Morningstar Risk Score: 39.00%
(8) WARR: 47.50%
(9) DScore: 25
(10) Weighted Average Life: 5 years

The transaction is performing according to the parameters set in the NPSA. As of November 15, 2022, the Borrower is in compliance with all coverage and collateral quality tests. There were no defaults registered in the portfolio. The current credit quality of the portfolio is reflected in the actual DBRS Morningstar Risk Score of 38.29.

Some particular strengths of the transaction are (1) the collateral quality, which consists mostly of senior-secured middle market loans; (2) the adequate diversification of the portfolio of collateral obligations (DScore currently at 42 versus test level of 25); and (3) the Collateral Manager’s expertise in CLOs and overall approach to selection of Collateral Obligations.

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 Loans in an Event of Default.

DBRS Morningstar modeled the NPSA 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 confirmation of the ratings on the Secured 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 ratings to a facility.

The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: December 2022 Update,” published on December 21, 2022 (https://www.dbrsmorningstar.com/research/407678). 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:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are Rating CLOs and CDOs of Large Corporate Credit (https://www.dbrsmorningstar.com/research/391226; January 26, 2022) and Cash Flow Assumptions for Corporate Credit Securitizations (https://www.dbrsmorningstar.com/research/391225; January 26, 2022), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as 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.

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:

Each of the principal asset class methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision. Specifically, the “Rating CLOs and CDOs of Large Corporate Credit” (January 26, 2022) methodology provides a general overview of the entire rating process and details on asset analysis. The “Cash Flow Assumptions for Corporate Credit Securitizations” (January 26, 2022) methodology outlines the assumptions and analytical approach used in cash flow analysis.

The last rating action on this transaction took place on January 5, 2022.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://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: Oxana Rhybak, Vice President, U.S. Structured Credit
Rating Committee Chair: Jerry van Koolbergen, Managing Director, Head of U.S. Structured Credit
Initial Rating Date: October 17, 2019

DBRS, Inc.
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-- Rating CLOs and CDOs of Large Corporate Credit and CLO Asset Model Version 2.2.3.1 (January 26, 2022), https://www.dbrsmorningstar.com/research/391226

-- Cash Flow Assumptions for Corporate Credit Securitizations (January 26, 2022), https://www.dbrsmorningstar.com/research/391225

-- Operational Risk Assessment for Collateralized Loan Obligation (CLO) and Collateralized Debt Obligation (CDO) Managers of Large Corporate Credits (September 23, 2022), https://www.dbrsmorningstar.com/research/403042

-- Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022), https://www.dbrsmorningstar.com/research/402153

-- Legal Criteria for U.S. Structured Finance (December 7, 2022), https://www.dbrsmorningstar.com/research/407008

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.