DBRS Morningstar Confirms Ratings on the Loans of Cerberus ICQ Levered LLC

DBRS, Inc. (DBRS Morningstar) confirmed its rating of AAA (sf) on the Loans of Cerberus ICQ Levered LLC (CICQ). The Loans are issued pursuant to a Credit Agreement dated May 8, 2019, among CICQ, as Borrower; the Lenders referred to therein; Cerberus ICQ Levered Loan Opportunities Fund, L.P. (Cerberus), as Servicer; Natixis, New York Branch, as Administrative Agent and U.S. Bank National Association (rated AA (high) with a Stable trend by DBRS Morningstar), as Collateral Agent.

The rating on the Loans addresses the timely payment of interest, excluding any Excess Interest Amounts (as defined in the Credit Agreement) and the ultimate payment of principal on or before the Maturity Date (as defined in the Credit Agreement).

The Loans issued by CICQ will be collateralized primarily by a portfolio of U.S. middle-market corporate loans and will be serviced by Cerberus (an affiliate of Cerberus Business Finance). DBRS Morningstar considers Cerberus an acceptable collateralized loan obligation (CLO) servicer.

To assess portfolio credit quality, DBRS Morningstar provides a credit estimate or internal assessment for each nonfinancial corporate obligor in the portfolio not rated by DBRS Morningstar. Credit estimates are not ratings; rather, they represent a model-driven default probability for each obligor that is used in assigning ratings to a facility.

As the Coronavirus Disease (COVID-19) spread around the world, certain countries imposed quarantines and lockdowns, including the United States, which accounts for more than one fourth of confirmed cases worldwide. The coronavirus pandemic has adversely affected not only the economies of the nations most afflicted with the coronavirus, but also the overall global economy with diminished demand for goods and services as well as disrupted supply chains. This may result in deteriorated financial conditions for many companies and obligors, some of which will experience the effects of such negative economic trends more than others. At the same time, governments and central banks in multiple regions, including the United States and Europe, have taken significant measures to mitigate the economic fallout from the coronavirus pandemic.

In conjunction with DBRS Morningstar’s commentary, “Global Macroeconomic Scenarios: Implications for Credit Ratings,” published on April 16, 2020, DBRS Morningstar further considers additional adjustments to assumptions for the CLO asset class that consider the moderate economic scenario outlined in the commentary. The adjustments include a higher default assumption for the weighted-average (WA) credit quality of the current collateral obligation portfolio. To derive the higher default assumption, DBRS Morningstar notches ratings for obligors in certain industries and obligors at various rating levels based on their perceived exposure to the adverse disruptions caused by the coronavirus. Considering a higher default assumption would result in losses that exceed the original default expectations for the affected classes of notes. DBRS Morningstar may adjust the default expectations further if the duration or severity of the adverse disruptions caused by the coronavirus change.

For CLOs, DBRS Morningstar ran an additional higher default stress on the WA DBRS Morningstar Risk Score of the current collateral obligation pool, and this stressed modeling pool was run through the Monte Carlo simulation component of the DBRS Morningstar CLO Asset Model to generate a stressed default rate for each rating level. DBRS Morningstar then performed a cash flow model analysis to determine the break-even default rate for the Loans. The results of the break-even default rate analysis indicate that the Loans can withstand an additional higher default stress commensurate with a moderate-scenario impact of the coronavirus.

For more information regarding DBRS Morningstar’s simplified set of macroeconomic scenarios for select economies related to the coronavirus, please see its April 16, 2020, commentary, Global Macroeconomic Scenarios: Implications for Credit Ratings.

For more information regarding DBRS Morningstar’s additional adjustment for select industries related to the coronavirus, please see its May 18, 2020, commentary, CLO Risk Exposure to the Coronavirus Disease (COVID-19).

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating CLOs and CDOs of Large Corporate Credit (February 28, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

This rating is endorsed by DBRS Ratings Limited (DBRS Morningstar) for use in the European Union. The following additional regulatory disclosures apply to endorsed ratings:

This is the first rating action on the Loans since the Initial Rating Date.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Lead Analyst: Quan Yoon
Rating Committee Chair: Jerry van Koolbergen, Managing Director, Head of U.S. Structured Credit

Initial Rating Date of the Loans: May 8, 2019

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

DBRS, Inc.
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New York, NY 10005 USA
Tel. +1 212 806-3277

--Rating CLOs and CDOs of Large Corporate Credit and CLO Asset Model Version 2.2.3 (February 28, 2020),
https://www.dbrsmorningstar.com/research/357452/rating-clos-and-cdos-of-large-corporate-credit
-- Cash Flow Assumptions for Corporate Credit Securitizations (February 28, 2020),
https://www.dbrsmorningstar.com/research/357453/cash-flow-assumptions-for-corporate-credit-securitizations
-- Operational Risk Assessment for Collateralized Loan Obligation (CLO) and Collateralized Debt Obligation (CDO) Managers of Large Corporate Credits (September 24, 2019),
https://www.dbrsmorningstar.com/research/350807/operational-risk-assessment-for-collateralized-loan-obligation-clo-and-collateralized-debt-obligation-cdo-managers-of-large-corporate-credits
-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 6, 2019),
https://www.dbrsmorningstar.com/research/346283/interest-rate-stresses-for-us-structured-finance-transactions
-- Legal Criteria for U.S. Structured Finance (January 21, 2020),
https://www.dbrsmorningstar.com/research/355719/legal-criteria-for-us-structured-finance