Research: Rating Action: Moody’s assigns ratings to a class of notes issued and a class of loans contracted by Sixth Street CLO XXI, Ltd.

0

New York, November 17, 2022 — Moody’s Investors Service (“Moody’s”) has assigned ratings to a class of bonds issued and a class of loans incurred by Sixth Street CLO XXI, Ltd. (the “Issuer” or “Sixth Street CLO XXI”).

Moody’s rating action is as follows:

Up to $256,000,000 of Class A Floating Rate Senior Secured Notes Due 2035, Allocated Aaa (sf)

$171,500,000 in Class A loans due 2035, allocated Aaa (sf)

The Notes and Borrowings listed above are herein collectively referred to as the “Rated Debt”

At the closing date, the Class A Notes and the Class A Loans have a principal balance of $84,500,000 and $171,500,000, respectively. At any time, the Class A Loans may be converted in whole or in part into Class A Notes, thereby decreasing the principal balance of the Class A Loans and increasing, by the corresponding amount, the principal balance of the Class A Notes. The aggregate principal balance of the Class A Loans and Class A Notes will not exceed $256,000,000 less the amount of any principal repayments.

RATINGS RATIONALE

The justification of the ratings is based on our methodology and takes into account all the relevant risks, in particular those associated with the portfolio and the structure of the CLO.

Sixth Street CLO XXI is a managed cash flow CLO. The debt issued will be secured primarily by highly syndicated senior secured corporate loans. At least 90.0% of the portfolio must be comprised of senior secured loans, cash and qualifying investments, and up to 10.0% of the portfolio may be comprised of junior loans, unsecured loans and authorized assets other than loans. The portfolio is increased by approximately 95% on the closing date.

Sixth Street CLO XXI Management, LLC (the “Manager”) will direct the selection, acquisition and disposal of assets on behalf of the Issuer and may engage in trading activities, including discretionary trading, during the five-year reinvestment period of the transaction. Thereafter, subject to certain restrictions, the Manager may reinvest unscheduled principal payments and proceeds from the sale of credit risk assets.

In addition to the Rated Debt, the Issuer has issued four other classes of secured notes and one class of subordinated notes.

The transaction incorporates interest and face value coverage tests which, if triggered, divert interest and principal proceeds to repay the notes in order of seniority.

Moody’s modeled the transaction using a cash flow model based on the binomial expansion technique, as described in section 2.3.2.1 of the rating methodology “Moody’s Global Approach to Rating Collateralized Loan Obligations”. published in December 2021.

For modeling purposes, Moody’s used the following basic assumptions:

Nominal amount: $400,000,000

Diversity score: 65

Weighted Average Rating Factor (WARF): 2935

Weighted Average Deviation (WAS): SOFR + 3.40%

Weighted Average Coupon (WAC): 6.00%

Weighted average recovery rate (WARR): 47.50%

Weighted Average Life (WAL): 8.00 years

Methodology underlying the rating action:

The main methodology used in these ratings is “Moody’s Global Approach to Rating Collateralized Loan Obligations” published in December 2021 and available on https://ratings.moodys.com/api/rmc-documents/74832. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Factors that would cause ratings to be upgraded or downgraded:

The performance of rated debt is subject to uncertainty. The performance of rated debt is sensitive to the performance of the underlying portfolio, which in turn depends on changing economic and credit conditions. The manager’s investment decisions and the management of the transaction will also affect the performance of rated debt.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

Further information on representations, warranties and enforcement mechanisms available to investors can be found at https://ratings.moodys.com/documents/PBS_1349028.

The analysis relies on an assessment of the characteristics of the collateral to determine the distribution of collateral losses, ie the function correlated to an assumption about the probability of occurrence of each level of possible collateral losses. Secondly, Moody’s assesses each possible collateral loss scenario using a model that reproduces the relevant structural characteristics to deduce the payouts and therefore the ultimate potential losses for each rated instrument. The loss incurred by a rated instrument in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.

Moody’s quantitative analysis involves an evaluation of scenarios that focus on factors contributing to rating sensitivity and consider the likelihood of material collateral losses or impaired cash flows. Moody’s weights the impact on rated instruments based on its assumptions of the likelihood of events in such scenarios occurring.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Danielle Cosentino
Associate Senior Analyst
Structured Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Jun Kim
Senior Vice President
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Share.

About Author

Comments are closed.