Fitch Ratings has affirmed the class A-1A and A-1B notes (class A-1 notes) in BCC Middle Market CLO 2018-1, LLC (BCC 2018-1) and revised the Outlook to Negative from Stable.

Fitch has also affirmed the class A-1L Loans and A-1 notes (class A-1 debt) in BCC Middle Market CLO 2019-1, LLC (BCC 2019-1) with a Stable Outlook. Fitch reviewed both transactions after updating credit opinions for the underlying middle market loan issuers.

RATING ACTIONS

ENTITY/DEBT	RATING		PRIOR

BCC Middle Market CLO 2019-1, LLC

A-1 05550GAA5

LT	AAAsf 	Affirmed		AAAsf

A-1L Loans

LT	AAAsf 	Affirmed		AAAsf

BCC Middle Market CLO 2018-1, LLC

A-1A 055328AA6

LT	AAAsf 	Affirmed		AAAsf

A-1B 055328AJ7

LT	AAAsf 	Affirmed		AAAsf

VIEW ADDITIONAL RATING DETAILS

TRANSACTION SUMMARY

BCC 2018-1 and BCC 2019-1 are middle market (MM) collateralized loan obligations (CLOs) managed by Bain Capital Specialty Finance, Inc. The CLOs originally closed in September 2018 and August 2019, respectively. Both are within their reinvestment periods, which are scheduled to end in October 2022 and 2023. In BCC 2018-1 the portfolio is made up of 48 issuers, and in BCC 2019-1 the portfolio consists of 59 issuers.

KEY RATING DRIVERS

Coronavirus Impact Analysis

Fitch updated credit opinions for the underlying MM loan issuers, reflecting the disruptions to these borrowers caused by the coronavirus pandemic as described in the publication 'Fitch Reviewing U.S. MM CLO Portfolios and Notes,' issued on June 3, 2020. Approximately 88% of the issuers with underlying credit opinions held in these Fitch-rated MM CLOs were updated. The resulting changes in credit quality and recovery estimates are detailed in the accompanying rating action report (RAR) for each CLO.

Average portfolio exposure to assets considered 'CCC' category and below (excluding defaults) remained flat at 27.0% from the transactions' last review. The average Fitch-weighted average rating factor (WARF) is 45.71 ('B-/CCC+') under standard assumptions. Defaults and deferrable exposures averaged 4.4% and 7.3%, respectively.

Fitch also conducted a coronavirus baseline sensitivity scenario, which applies a one-notch downgrade for corporate issuers on Negative Outlook, regardless of sector, with a floor of 'CCC-'. Assets with a Fitch-derived rating with a Negative Outlook comprised 12.8% of the portfolio for BCC 2018-1 and 12.7% for BCC 2019-1. The results of this sensitivity analysis were considered in determining Rating Outlooks on the CLO notes.

Asset credit quality, asset security, and portfolio composition are captured in RDRs, RRRs, and rating loss rates (RLRs) produced by Fitch's Portfolio Credit Model (PCM). The PCM RLRs from the standard and coronavirus baseline sensitivity analyses were compared to the RLRs corresponding to the original Fitch Stressed Portfolio (FSP) at the initial rating assignment, as well as to the rated notes' current credit enhancement (CE) levels. Current RLR cushions were negative, and as a result, Fitch conducted an updated cash flow analysis for both transactions.

Cash Flow Analysis:

Fitch used a customized proprietary cash flow model (CFM) to replicate the principal and interest waterfalls and the various structural features of the transaction. Both transactions were modelled using the current portfolio based on both the stable and rising interest rate scenario and the front-, mid- and back-loaded default timing scenario, as outlined in Fitch's criteria. In addition, Fitch gave more weight to the stable interest rate scenarios in determining the rating actions.

When conducting cash flow analysis, Fitch's cash flow model first projects the portfolio scheduled amortization proceeds and any voluntary prepayments for each reporting period of the transaction life assuming no defaults (and no voluntary terminations, when applicable). In each rating stress scenario, such scheduled amortization proceeds and prepayments are then reduced by a scale factor equivalent to the overall percentage of loans that are not assumed to default (or to be voluntarily terminated, when applicable). This adjustment avoids running out of performing collateral due to amortization and voluntary prepayments and ensures all of the defaults projected to occur in each rating stress are realized in a manner consistent with Fitch's published default timing curve.

In BCC 2018-1, the cash flow analysis shows that the model-implied ratings (MIR) of the class A-1 notes are two notches below their current rating levels under standard assumptions and the coronavirus baseline sensitivity scenarios. However, given the high 'AAAsf' default hurdle rate at 73.0% and the level of stress implied in the 'AAAsf' rating recovery rate of 27.1%, combined with the remaining reinvestment period allowing the manager to improve portfolio composition, Fitch viewed current failures at the 'AAAsf' levels as minor and 'AAAsf' to remain appropriate for these notes. The cash flow analysis indicated that the notes are sensitive to potential further deterioration in the portfolio due to its relatively high concentration. As a result, Fitch revised the Outlooks to Negative for these notes.

The MIRs for the class A-1 debt in BCC 2019-1 are one notch below their current rating levels under standard assumptions and the coronavirus baseline sensitivity scenarios. Failures under the standard assumptions were limited to only two rising interest-rate scenarios. Given the 'AAAsf' rating default hurdle rate of 69.5% and 'AAAsf' recovery rate of 25.9% in the standard analysis, as well as the remaining reinvestment period, Fitch believes that 'AAAsf' rating remains appropriate. In the coronavirus baseline sensitivity, the A-1 class is passing 'AAAsf' in four scenarios and failing 'AAAsf' with minor failures below 0.5% in three scenarios, with bigger failures limited to two rising interest-rate scenarios. Considering performance across all nine scenarios and magnitude of failures against the 'AAAsf' stress levels, Fitch believes that A-1 class remains resilient to potential future deterioration in the portfolio performance and Stable Outlook remains appropriate.

RATING SENSITIVITIES

Fitch conducted rating sensitivity analysis on the closing date, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities, as defined in its CLOs and Corporate CDOs Rating Criteria. For more information on Fitch's Stressed Portfolio and initial model-implied rating sensitivities, please refer to the presale/new issue reports of these transactions.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

An upgrade scenario would not be applicable to the notes in this review since they are already rated at the highest rating level (AAAsf).

Factors that could, individually or collectively, lead to negative rating action/downgrade:

A 25% increase of the mean default rate across all ratings and a 25% decrease of the recovery rate at all rating levels would lead to a downgrade of up to seven and six notches for the rated debt for BCC 2018-1 and BCC 2019-1, respectively, based on the model-implied ratings.

Downgrades may occur if realized and projected losses in the respective portfolios are higher than those assumed at closing in the Fitch Stressed Portfolio and that are not offset by the increase in CLO notes' credit enhancement levels.

Coronavirus Downside Scenario Impact:

Fitch has added a sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of infections in the major economies, before a halting recovery begins in 2021.

The downside sensitivity incorporates the following stresses: applying a one-notch downgrade to all Fitch-derived ratings in the 'B' rating category; applying a 0.7 recovery rate multiplier to all assets from issuers in the eight industries identified as being most exposed to negative performance resulting from business disruptions from the coronavirus (Group 1 countries only); and applying a 0.85 recovery rate multiplier to all other assets. In such scenario, the model-implied ratings for both BCC 2018-1 and BCC 2019-1 are 7 notches below the current ratings on the notes. This sensitivity is not used to derive Fitch's rating actions.

BEST/WORST CASE RATING SCENARIO

International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Additional information is available on www.fitchratings.com

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