DBRS Morningstar Confirms AA (sf) Ratings on Class A-R and Class A-T Loans Issued by Cerberus PSERS Levered LLC

DBRS, Inc. (DBRS Morningstar) confirmed its AA (sf) ratings on the Class A-R Loans and Class A-T Loans (together, the Loans) issued by Cerberus PSERS Levered LLC up to the total commitment of $320,000,000 permitted under the Loans.

The Loans were issued pursuant to the Credit Agreement dated as of November 12, 2015 (as amended by Amendment No. 1 dated as of March 1, 2016; Amendment No. 2 dated as of August 30, 2016; Amendment No. 3 dated as of November 17, 2016; Amendment No. 4 dated as of May 15, 2017; Amendment No. 5 dated as of December 8, 2017; Amendment No. 6 dated as of August 16, 2018; Amendment No. 7 dated as of November 20, 2018; and Amendment No. 8 dated as of November 20, 2020), among Cerberus PSERS Levered LLC as the Borrower; Cerberus PSERS Levered Loan Opportunities Fund, L.P. as the Servicer; Natixis, New York Branch as the Administrative Agent; U.S. Bank National Association (rated AA (high) with a Negative trend by DBRS Morningstar) as the Collateral Agent; and the Lenders party thereto.

DBRS Morningstar confirmed the ratings pursuant to the execution of Amendment No. 8 to the Credit Agreement, dated as of November 20, 2020, which modifies certain terms of the Credit Agreement referred to above, including the increase of the total commitments on the Loans to $320,000,000 from $220,000,000, among other changes.

The DBRS Morningstar ratings address Cerberus PSERS Levered LLC’s ability to make timely payments of interest (excluding any Excess Interest Amounts and any additional interest payable pursuant to Section 2.5(c)(ii), as defined in the Credit Agreement) and ultimate payment of principal on or before the Final Maturity Date (as defined in the Credit Agreement).

The Loans will be collateralized primarily by a portfolio of U.S. middle-market corporate loans and other corporate obligations. The servicer for Cerberus PSERS Levered LLC is Cerberus PSERS Levered Loan Opportunities Fund, L.P., an affiliate of CBF Manager, L.P. and Cerberus Capital Management II, L.P.

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

As the Coronavirus Disease (COVID-19) spread around the world, certain countries imposed quarantines and lockdowns, including the U.S., which alone accounts for over one-fourth of confirmed cases worldwide. The coronavirus pandemic has negatively affected not only the economies of the countries with the highest infection rates, 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 intensely than others. At the same time, governments and central banks in multiple regions, including the U.S. 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, and updated in its “Global Macroeconomic Scenarios: June Update” commentary on June 1, 2020; “Global Macroeconomic Scenarios: July Update” commentary on July 22, 2020; and “Global Macroeconomic Scenarios: September Update” commentary on September 10, 2020, DBRS Morningstar further considers additional adjustments to assumptions for the collateralized loan obligation (CLO) asset class in the moderate economic scenario outlined in the commentaries. 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 pandemic. 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 adjustment on the WA DBRS Morningstar Risk Score of the current collateral obligation pool, and compared the stressed WA Risk Score with the Maximum DBRS Morningstar Risk Scores allowed in the Collateral Quality Matrix. DBRS Morningstar observed that the Collateral Quality Matrix contained sufficient rows and columns that would allow for higher stressed DBRS Morningstar Risk Scores, and therefore a higher default probability on the collateral pool, while still complying with the other Collateral Quality Tests, such as WA Spread and Diversity Score. The results of this stress 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” at https://www.dbrsmorningstar.com/research/359679; its April 22, 2020, commentary “Global Macroeconomic Scenarios: Application to Credit Ratings” at https://www.dbrsmorningstar.com/research/359903; its June 1, 2020, updated commentary, “Global Macroeconomic Scenarios: June Update” at https://www.dbrsmorningstar.com/research/361867; its July 22, 2020, updated commentary, “Global Macroeconomic Scenarios: July Update” at https://www.dbrsmorningstar.com/research/364318; and its September 10, 2020, updated commentary “Global Macroeconomic Scenarios: September Update” at https://www.dbrsmorningstar.com/research/366543.

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)” at https://www.dbrsmorningstar.com/research/361112.

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 (July 21, 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:

The last rating action on this transaction took place on November 14, 2019.

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: Joseph Priolo, Senior Vice President, Credit Ratings, U.S. Structured Credit
Rating Committee Chair: Jerry van Koolbergen, Managing Director, Head of U.S. Structured Credit, Global Structured Finance
Initial Rating Date: November 12, 2015

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

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-- Rating CLOs and CDOs of Large Corporate Credit and CLO Asset Model Version 2.2.3 (July 21, 2020)
https://www.dbrsmorningstar.com/research/364310/rating-clos-and-cdos-of-large-corporate-credit

-- Operational Risk Assessment for Collateralized Loan Obligation (CLO) and Collateralized Debt Obligation (CDO) Managers of Large Corporate Credits (September 22, 2020)
https://www.dbrsmorningstar.com/research/366977/operational-risk-assessment-for-collateralized-loan-obligation-clo-and-collateralized-debt-obligation-cdo-managers-of-large-corporate-credits

-- Cash Flow Assumptions for Corporate Credit Securitizations (July 21, 2020)
https://www.dbrsmorningstar.com/research/364311/cash-flow-assumptions-for-corporate-credit-securitizations

-- Interest Rate Stresses for U.S. Structured Finance Transactions (October 23, 2020)
https://www.dbrsmorningstar.com/research/361961/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