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NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to three classes of notes issued by Monroe Capital ABS Funding 2021-1, Ltd. (MCAF 2021-1), a securitization backed by a portfolio of recurring revenue and middle market corporate loans.

MCAF 2021-1 is a $400.00 million securitization managed by Monroe Capital Management Advisors, LLC (“Monroe” or the “Collateral Manager”), an affiliate of Monroe Capital LLC. The securitization consists of $30 million Class A-1 variable funding note, $248.0 million Class A-2 fixed-rate notes, $32.0 million Class B fixed-rate notes (collectively the “Notes”), and $120.0 million subordinated notes, which expect to receive payments from a portfolio of recurring revenue loans (“RRLs”, also known as “late-stage loans”) and middle market loans (“MMLs”). The transaction will have a 2.1-year reinvestment period. The ratings reflect initial credit enhancement levels, excess spread, and structural features.

Monroe’s recurring revenue loan strategy focuses on first-lien senior loans to software and technology companies with a minimum level of recurring revenue and low loan-to-value ratios. Despite the low level of earnings, the obligors in the portfolio usually have strong liquidity profiles and loan covenants. The overall K-WARF of the portfolio is 3357, which represents a weighted average portfolio assessment between B- and CCC+. The portfolio presented to KBRA contains exposures to 45 obligors with 60.0% of the par exposure to the recurring revenue loans. Due to the economic fallout from COVID-19, there may be pressure on overall portfolio credit quality. As such, the portfolio’s K-WARF may increase in the near-term. KBRA considered the impact of potential credit migration.

Monroe is an affiliate of Monroe Capital LLC established in 2004, with $9.4 billion of committed and managed capital under management as of Dec. 2020. Monroe currently manages $3.3 billion in middle market CLOs across 11 outstanding transactions. Since its founding, Monroe has invested over $3.6 billion within its Software, Technology, & Recurring Revenue (“S.T.A.R.R.”) strategy. The senior management team has extensive industry experience.

KBRA’s ratings on the Class A-1, A-2, and B notes consider timely payment of interest and ultimate payment of principal by the applicable stated maturity date.

KBRA analyzed the transaction using Structured Credit Global Rating Methodology published on November 19, 2020 and the Global Structured Finance Counterparty Methodology published on August 8, 2018.

Click here to view the report. To access ratings and relevant documents, click here.

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Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority pursuant to the Temporary Registration Regime. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

Contacts

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Sean Malone, CFA, Senior Director (Lead Analyst)

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George Lyons, CFA, Senior Director

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Steven Zheng, Senior Analyst

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Eric Hudson, Senior Managing Director (Rating Committee Chair)

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