DBRS Finalizes Provisional Ratings of the Senior Funding Facility and the Mezzanine Funding Facility of Crestline Denali CLO XVII, Ltd.

DBRS, Inc. (DBRS) finalized the following provisional ratings of the Senior Funding Facility and the Mezzanine Funding Facility (together, the Facilities) of Crestline Denali CLO XVII, Ltd.:

-- Senior Funding Facility due April 2027 rated A (sf)
-- Mezzanine Funding Facility due April 2027 rated BBB (low) (sf)

The ratings on the Facilities are being finalized pursuant to the Warehouse Agreement, dated as of April 12, 2018, between Crestline Denali CLO XVII, Ltd. as Borrower; Barclays Bank PLC, New York Branch (Barclays) as Facility Agent; Crestline Denali Capital, L.P. (Crestline Denali Capital) as Collateral Manager; and U.S. Bank National Association as Collateral Administrator, Securities Intermediary and Security Agent.

The rating on the Senior Funding Facility addresses the timely payment of the Senior Base Interest Amount and the ultimate payment of Senior Funding Amounts on or before the Scheduled Maturity Date in April 2027. The rating on the Mezzanine Funding Facility addresses the ultimate payment of the Mezzanine Base Interest Amount and the ultimate payment of the Mezzanine Funding Amounts on or before the Scheduled Maturity Date in April 2027. For the avoidance of doubt, these ratings do not address the Senior Additional Interest Amount or the Mezzanine Additional Interest Amount.

The Borrower is a limited-liability company incorporated 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 finalized rating date, there exist $121.23 million of senior secured term loans to 91 unique obligors, and the Borrower will start to draw on the Facilities based on a predetermined schedule. Upon each drawing request, the Collateral Manager will comply with certain portfolio tests. The warehouse will have a reinvestment period end date in April 2019, 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 April 2027 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 Lender (Barclays) following an Event of Default (EOD). Under the Warehouse Agreement, upon an occurrence of (and during the continuation of) an EOD, the Instructing Lender (Barclays) may, in its sole option, elect to designate an Acceleration Date and liquidate the portfolio, which could adversely affect the Mezzanine Lenders and potentially affect ratings volatility on the Mezzanine Funding Facility.

The transaction contains collateral manager and subordinated lender types of EODs, which could lead to acceleration and liquidation. However, the transaction is at closing a dual-lender facility, where Barclays retains 100% of the rated Facilities. If at any time additional lenders are admitted into either rated facility, DBRS may either take a rating action or withdraw the rating on such facility at that time, subject to future amendments.

DBRS’s rating analysis does not take into account the risk of loss due to liquidation at market prices after an EOD has occurred.

As the trades settle in the warehouse portfolio, under the drawing schedule, Barclays (as Senior and Mezzanine Lender) will continue to fund the Facilities upon the Borrower’s request. In its analysis, DBRS has considered Barclays’ ability to fund the Facilities, and it will continue to monitor the transaction as part of ongoing surveillance. Barclays Bank PLC currently has a public Long-Term Debt rating of “A” with a Stable trend by DBRS.

The finalized ratings reflect the following primary considerations:

(1) The Warehouse Agreement dated as of April 12, 2018.

(2) The integrity of the transaction structure.

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

(4) DBRS’s assessment of the collateralized loan obligation management capabilities of Crestline Denali Capital.

To assess portfolio credit quality, DBRS will provide a credit estimate or internal assessment for each corporate obligor 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 ratings to the transaction.

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

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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

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