DBRS Assigns Provisional Rating to Ares CLO Warehouse 2017-3 LLC Facility

DBRS, Inc. (DBRS) has today assigned a provisional rating of BBB (sf) to Ares CLO Warehouse 2017-3 LLC’s Facility due July 2026.

The provisional rating on the Facility is being assigned pursuant to the Warehouse Agreement dated as of July 11, 2017, between Ares CLO Warehouse 2017-3 LLC as Borrower; Barclays Bank PLC, New York Branch (Barclays) as Facility Agent; Ares CLO Management II LLC as Asset Manager; and Wells Fargo Bank, N.A. as Collateral Administrator, Securities Intermediary and Security Agent.

The Borrower is a limited-liability company established under the laws of the Cayman Islands. This transaction is set up as a cash flow securitization, which will be collateralized by a portfolio of leveraged loans subject to Collateral Quality and Portfolio Profile Tests. As of the provisional rating date, there exist no collateral loans in the transaction portfolio. Ares CLO Management II LLC will act as the Asset Manager of the Borrower.

The Borrower will start to draw on the Facility based on a predetermined schedule. Upon each drawing request, the Asset Manager will comply with certain portfolio tests. The warehouse will have a reinvestment period end date in January 2018, followed by an amortization period. The warehouse will reach its maturity date at the earliest of the CLO Closing Date; the Scheduled Maturity Date in July 2026; or the date upon which the final payment on the last of the collateral of the portfolio has been received.

An early maturity date can be caused by an Optional Early Maturity Date (no earlier than 12 months after the reinvestment period end date) or at the sole option of the Instructing Party (Barclays) following an Event of Default (EOD). Under the Warehouse Agreement, upon an occurrence of (and during the continuation of) an EOD, the Instructing Party (Barclays) may, in its sole option, elect to designate an Acceleration Date and liquidate the portfolio.

A subordinated investor has the right to declare an Optional Partial Termination Date if the reinvestment period has ended or if the CLO Pricing Date has not occurred within 90 days of the warehouse closing and provided that there has not been an EOD. After the declaration, such subordinated investors can direct the Asset Manager to sell a pro rata portion of each Collateral Obligation, the proceeds of which will first be applied down the priority of payments to repay a pro rata portion of the Facility before they can repay the pro rata portion of the subordinated investors which declared such date.

The above rating on the Facility is provisional. Finalized rating will be issued upon receipt of confirmation that the aggregated funding amount of the Facility has reached $30 million as per the funding matrix stipulated in the Warehouse Agreement. To the extent that the documents and information provided to DBRS by the Borrower, Barclays, and the Asset Manager as of this date differ from the executed versions of the governing transaction documents, DBRS may assign a lower finalized rating to the Facility or may avoid assigning a finalized rating to the Facility altogether.

The provisional rating reflects the following primary considerations:

(1) The Warehouse Agreement dated as of July 11, 2017.

(2) The integrity of the transaction structure.

(3) Adequate credit enhancement to withstand projected collateral loss rates under various cash flow stress scenarios.

The finalized rating will reflect these considerations, but will also take into consideration an assessment of capabilities of the Asset Manager as they relate to collateralized loan obligation management. As of the date of this provisional rating, DBRS has not yet evaluated Ares CLO Management II LLC as an Asset Manager. DBRS will perform an assessment of the origination and servicing capabilities of the Asset Manager prior to finalizing its rating on the Facility.

The rating on the Facility addresses the timely payment of the Base Interest Amount and Additional Payment Amounts as well as the ultimate payment of Lender Funding Amounts on or before the Scheduled Maturity Date in July 2026. For the avoidance of doubt, this rating does not address the Additional Interest Amount.

To assess portfolio credit quality, DBRS will provide a credit estimate or internal assessment for each corporate obligor that is not publicly rated in the portfolio. Credit estimates are not ratings; rather, they represent a primarily model-driven default probability for each obligor that is used in assigning a rating to the transaction.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating Methodology for CLOs and CDOs of Large Corporate Credit, which can be found on dbrs.com under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.