Morningstar DBRS Confirms Provisional Credit Ratings, Removes Under Review With Developing Implications Status on Loans Issued by Whitney Funding, LLC

DBRS, Inc. (Morningstar DBRS) confirmed its provisional credit ratings and removed the Under Review with Developing Implications status on the Class A Loan, the Class B Loan, the Class C Loan, the Class D Loan, and the Class E Loan (collectively, the Loans) issued by Whitney Funding, LLC, pursuant to the terms of the Second Amended and Restated Loan Agreement (the Loan Agreement) dated December 15, 2022, among Whitney Funding, LLC as Borrower; Delaware Life Insurance Company as a Lender and the Managing Lender; and Alter Domus (US) LLC as the Paying Agent and Calculation Agent:

-- Class A Loan: AA (low) (sf)
-- Class B Loan A (low) (sf)
-- Class C Loan BBB (sf)
-- Class D Loan BB (low) (sf)
-- Class E Loan B (low) (sf)

The provisional credit rating on the Class A Loan addresses the timely payment of interest and the ultimate payment of principal on or before the Legal Final Maturity Date of December 18, 2034. The provisional credit ratings on the Class B Loan, Class C Loan, Class D Loan, and Class E Loan address the ultimate payment of interest and the ultimate payment of principal on or before the Legal Final Maturity Date of December 18, 2034.

A provisional credit rating is not a final rating with respect to the Loans and may change or be different than the final rating assigned or may be discontinued. The assignment of final ratings on the Loans is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the ratings, including, for these Loans: completion of the funding period, up to the Maximum Commitment Amount (as defined in the Loan Agreement) and satisfaction of the Portfolio Criteria (as defined in the Loan Agreement). Failure by the Borrower to complete the above conditions, as described in the Loan Agreement, may result in the provisional ratings not being finalized or being finalized at different ratings than the assigned provisional ratings.

Should a Distribution Event (as defined in the Loan Agreement) occur, the Designated Lender (as defined in the Loan Agreement) shall have the right at any time, upon written notice to the Borrower, the Paying Agent, and the Rating Agency, to instruct the Paying Agent to distribute the Borrower’s assets to the Designated Lenders. In consideration therefor, the Aggregate Loan Balance of the Loans will be reduced to zero and all obligations of the Borrower (except those that expressly survive the termination of the Loan Agreement) shall be deemed satisfied.

The Borrower is a bankruptcy-remote special-purpose vehicle set up by Delaware Life Insurance Company as the Managing Lender and Servicer. At the time of closing, Morningstar DBRS understands that Delaware Life Insurance Company is the sole Lender to the Borrower (though Delaware Life Insurance Company may sell or assign the Loans following the closing). As such, as of this date, certain key parties to this transaction are related parties. In addition, Delaware Life Insurance Company engaged Morningstar DBRS for the determination of the credit ratings on the Loans.

The Loans issued by the Borrower are collateralized primarily by a portfolio of U.S. middle-market corporate loans. Whitney Funding, LLC is managed by Delaware Life Insurance Company. Morningstar DBRS considers Delaware Life Insurance Company an acceptable collateralized loan obligation (CLO) manager.

CREDIT RATING RATIONALE/DESCRIPTION
The provisional credit rating confirmations are the result of Morningstar DBRS’ review of the transaction performance by applying the “Global Methodology for Rating CLOs and Corporate CDOs” (the CLO Methodology), initially released on October 22, 2023. On November 9, 2023, the provisional credit ratings were placed Under Review with Developing Implications to allow for Morningstar DBRS to review the provisional credit ratings using the CLO Methodology.

The Scheduled Reinvestment Period Termination Date is three years following the DBRS Final Ratings Effective Date (as defined in the Loan Agreement). The Legal Final Maturity Date is December 18, 2034.

Morningstar DBRS monitors transaction performance metrics based on the periodicity of the transaction’s reporting. The performance metrics include Collateral Quality Tests, Coverage Tests, Concentration Limitations, and Performing Collateral Par. As of January 5, 2024, the Borrower is in compliance with all performance metrics except Senior Secured Loans and Permitted Investments Concentration Limit. However, this failure is calculated using the transaction’s maximum pool par. When calculated based on the current Par Amount, the transaction is compliance with this Concentration Limit. Therefore, Morningstar DBRS considers the test failure to not be material and therefore confirmed its credit ratings on the Loans, as the current transaction performance is within Morningstar DBRS’ expectation.

Some of the performance metrics that Morningstar DBRS reviewed are listed below:

Collateral Quality Tests
Minimum Weighted-Average Spread: Threshold 5.50%; Current 6.22%
Maximum Morningstar DBRS Risk Score: Threshold 32.00%; Current 27.32%

Coverage Tests
Class A Overcollateralization Ratio: Threshold 137.06%; Current 148.23%
Class B Overcollateralization Ratio: Threshold 125.33%; Current 134.39%
Class C Overcollateralization Ratio: Threshold 119.00%; Current 125.99%
Class D Overcollateralization Ratio: Threshold 110.28%; Current 117.20%
Class E Overcollateralization Ratio: Threshold 106.73%; Current 112.62%

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

(1) The execution of the Second Amended and Restated Loan Agreement, dated as of December 15, 2022.
(2) The transaction’s capital structure and the form and sufficiency of available credit enhancement.
(3) Relevant credit enhancement in the form of subordination and excess spread.
(4) The ability of the Loans to withstand projected collateral loss rates under various cash flow stress scenarios.
(5) 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.
(6) Morningstar DBRS’ assessment of the origination, servicing, and CLO management capabilities of Delaware Life Insurance Company.
(7) The legal structure as well as legal opinions addressing certain matters of the Borrower and the consistency with the Morningstar DBRS “Legal Criteria for U.S. Structured Finance” methodology.

Some particular strengths of the transaction are (1) the collateral quality, which consists mostly of senior-secured middle-market loans; and (2) the expected adequate diversification of the portfolio 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 Collateral Quality Matrix), 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.

The transaction is performing according to the contractual requirements of the Loan Agreement. There were no defaults registered in the underlying portfolio to date. Considering the transaction performance, its legal aspects and structure, Morningstar DBRS confirmed its provisional credit ratings on the Loans.

To assess portfolio credit quality, Morningstar DBRS provides a credit estimate or internal assessment for each nonfinancial corporate obligor in the portfolio not rated by Morningstar DBRS. Credit estimates are not credit ratings; rather, they represent a model-driven default probability for each obligor that Morningstar DBRS uses when rating the Loans.

The transaction assumptions consider Morningstar DBRS’ baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: December 2023 Update,” published on December 19, 2023 (https://dbrs.morningstar.com/research/425506). These baseline macroeconomic scenarios replace Morningstar DBRS’ moderate and adverse pandemic scenarios, which were first published in April 2020.

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

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

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) https://dbrs.morningstar.com/research/427030.

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

The principal methodology applicable to the credit ratings is Global Methodology for Rating CLOs and Corporate CDOs (February 23, 2024) https://dbrs.morningstar.com/research/428544

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the credit rating process for this credit rating action.
Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.
This is a solicited credit rating.

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

Operational Risk Assessment for Collateralized Loan Obligations (CLOs) and Corporate Collateralized Debt Obligations (CDOs) (September 14, 2023), https://dbrs.morningstar.com/research/420608

Legal Criteria for U.S. Structured Finance (December 7, 2023)
https://dbrs.morningstar.com/research/425081

Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024)
https://dbrs.morningstar.com/research/428623

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