DBRS Finalizes Provisional Rating on Senior Funding Facility of MidOcean Credit CLO X Warehouse LLC

DBRS, Inc. (DBRS) finalized its provisional rating of BBB (sf) on the Senior Funding Facility (the Facility) due November 2027 issued by MidOcean Credit CLO X Warehouse LLC.

The rating on the Facility is being finalized pursuant to the Warehouse Agreement dated as of November 20, 2018 (and further amended pursuant to the Short-Form Amendment Agreement dated as of December 5, 2018), among MidOcean Credit CLO X Warehouse LLC as Borrower; Barclays Bank PLC, New York Branch (Barclays) as Facility Agent and Lender; MidOcean Credit Fund Management L.P. (MidOcean Credit Fund) as Collateral Manager; the LLC Members named on the signature page thereto; and Wells Fargo Bank, N.A. (rated AA with a Stable trend by DBRS) as the 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 Senior Additional Payment Amount as well as the ultimate payment of Senior Funding Amounts on or before the Scheduled Maturity Date in November 2027. For the avoidance of doubt, the rating does not address the Senior 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 $63.60 million of senior-secured term loans to 40 unique obligors and the Borrower will continue to draw on the Facility 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 November 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 November 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 24 months after the Warehouse Closing Date) or at the sole option of the Instructing Lender (Barclays) following an event of default (EOD). Under the Warehouse Agreement, upon an occurrence 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.

The transaction contains other collateral manager and subordinated lender type of EODs, which could lead to acceleration and liquidation; however, the transaction is at closing a dual-lender facility whereby Barclays retains 100% of the rated Facility. 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 caused by liquidation at market prices after an EOD has occurred.

The finalized rating reflects the following primary considerations:

(1) The Warehouse Agreement dated as of November 20, 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 (CLO) management capabilities of MidOcean Credit Fund. DBRS conducted the operational risk review with MidOcean Credit Fund via telephone and did not perform an on-site operational risk review of the Collateral Manager. DBRS considers MidOcean Credit Fund to be an acceptable CLO Collateral Manager.

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 Methodology for CLOs and CDOs of Large Corporate Credit, which can be found on dbrs.com under Methodologies & Criteria.

This rating was initiated at the request of the rated entity.

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.

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

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