KBRA assigns preliminary ratings to five classes of debt issued by Monroe Capital ABS Funding II, LP (MCAF II), a securitization backed by a portfolio of recurring revenue and middle market corporate loans.
MCAF II is an approximate $378.4 million securitization managed by Monroe Capital Management Advisors, LLC (“Monroe” or the “Collateral Manager”), an affiliate of Monroe Capital LLC. The securitization consists of $92.0 million Class A-L floating rate loans, $74.5 million Class A-1 fixed rate notes, $60.5 million Class B fixed rate notes, $28.4 million Class C fixed rate notes, $24.6 million Class D fixed rate notes and $98.4 million of Subordinated Notes, which expect to receive payments from a portfolio of recurring revenue loans (“RRLs”) and middle market loans (“MMLs”). The reinvestment period is approximately two years from the closing date. The ratings reflect initial credit enhancement levels, excess spread, and structural features.
The collateral in MCAF II may contain up to 75% RRLs. Monroe’s recurring revenue lending strategy focuses on first-lien senior secured loans to business-to-business 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 portfolio presented to KBRA contains exposures to 76 obligors and has an overall K-WARF of 3575, which equates to a weighted average portfolio assessment between B- and CCC+.
Monroe is an affiliate of Monroe Capital LLC established in 2004, with $14.1 billion of committed and managed capital under management as of Oct. 2022. Monroe currently manages $4.4 billion in middle market loan CLOs across approximately 13 outstanding transactions. Since its founding, Monroe has invested $7.4 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-L Loans and Class A-1, Class B, and Class C Notes considers timely payment of interest and ultimate payment of principal by the applicable stated maturity date. The class D Notes reflect ultimate payment of interest and ultimate payment of principal by the stated maturity date.
KBRA analyzed the transaction using the Structured Credit Global Rating Methodology, the Global Structured Finance Counterparty Methodology, and the ESG Global Rating Methodology.
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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.
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.
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