DBRS Morningstar Assigns Ratings to the Class A-R Loans and Class A-T Loans of ABPCIC Funding III LLC

DBRS, Inc. (DBRS Morningstar) assigned ratings of AA (sf) to both the Class A-R Loans and the Class A-T Loans (together, the Class A Loans) issued by ABPCIC Funding III LLC, pursuant to the Credit Agreement dated as of March 24, 2021, among ABPCIC Funding III LLC, as the Borrower; Natixis, New York Branch, as the Administrative Agent; U.S. Bank National Association, as the Collateral Agent, Collateral Administrator, and Custodian; and the Lenders referred to therein.

The ratings on the Class A Loans address the timely payment of interest up to the Interest Rate Cap (as defined in the Credit Agreement) and the ultimate payment of principal on or before the Stated Maturity (as defined in the Credit Agreement).

The Class A Loans will be collateralized primarily by a portfolio of U.S. middle-market corporate loans and other corporate obligations. ABPCIC Funding III LLC is managed by AB Private Credit Investors LLC (ABPCI), an affiliate of AllianceBernstein L.P. DBRS Morningstar considers ABPCI to be an acceptable collateralized loan obligation (CLO) manager.

The ratings reflect the following primary considerations:

(1) The Credit Agreement, dated as of March 24, 2021.
(2) The integrity of the transaction structure.
(3) DBRS Morningstar’s assessment of the portfolio quality.
(4) Adequate credit enhancement to withstand DBRS Morningstar’s projected collateral loss rates under various cash flow stress scenarios.
(5) DBRS Morningstar’s assessment of the origination, servicing, and CLO management capabilities of ABPCI.

To assess portfolio credit quality, DBRS Morningstar provides a credit estimate or internal assessment for each nonfinancial corporate obligor in the portfolio that is 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 a rating to a facility.

As the Coronavirus Disease (COVID-19) spread around the world, certain countries imposed quarantines and lockdowns, including the U.S., which accounts for more than one fourth of confirmed cases worldwide. The coronavirus pandemic has negatively affected not only the economies of the countries most afflicted, but also the overall global economy, with diminished demand for goods and services as well as disrupted supply chains. The effects of the pandemic 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 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 its updated commentary, “Global Macroeconomic Scenarios: March 2021 Update,” published on March 17, 2021, 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 there are changes in the duration or severity of the adverse disruptions.

For CLOs, DBRS Morningstar ran an additional higher default adjustment on the WA DBRS Morningstar Risk Score of the current collateral obligation pool and then ran this adjusted modeling pool through the DBRS Morningstar CLO Asset Model to generate a stressed default rate. DBRS Morningstar then performed a cash flow model analysis to determine the breakeven default rate for the rated debt. The breakeven default rate is computed over nine combinations of default timing and interest rate stresses. The breakeven default rate must exceed the lifetime total default rate generated by the DBRS Morningstar CLO Asset Model for the debt to achieve the rating. The results of this adjustment indicate that the Advances can withstand an additional higher default stress commensurate with a moderate-scenario impact of the coronavirus pandemic.

For more information regarding DBRS Morningstar’s simplified set of macroeconomic scenarios for select economies related to the coronavirus, please see 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, and its March 17, 2021, updated commentary, “Global Macroeconomic Scenarios: March 2021 Update,” at https://www.dbrsmorningstar.com/research/375376.

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 can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating CLOs and CDOs of Large Corporate Credit (February 8, 2021), 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.

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

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277