Kroll Bond Rating Agency assigned preliminary ratings to three classes of notes issued by Golub Capital Partners ABS Funding 2021-1 (GCPAF 2021-1), a securitization backed by a portfolio of recurring revenue and middle market corporate loans.

GCPAF 2021-1 is a $400 million securitization managed by GC Investment Management (GCIM or the collateral manager), an investment adviser and affiliate of GC Advisors (collectively, with these affiliates and other funds managed by them and their affiliates, Golub Capital).

The securitization consists of $30 million Class A-1 variable funding notes, $252 million Class A-2 fixed-rate notes, $40 million Class B fixed-rate notes and $108 million 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.

Golub Capital’s recurring revenue lending strategy focuses on first lien senior secured 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 3,431, which represents a weighted average portfolio assessment between B- and CCC+. The portfolio presented to KBRA contains exposures to 46 obligors with 69.1% of the par exposure to the RRLs. 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.

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.