DBRS Morningstar Assigns Ratings to the Class A-R Loans, Class A-T Loans, and Class B Loans of ABPCI Pacific Funding LP

DBRS, Inc. (DBRS Morningstar) assigned ratings of AA (sf) to each of the Class A-R Loans and the Class A-T Loans and a rating of AA (low) (sf) to the Class B Loans (together with the Class A-R Loans and the Class A-T Loans, the Loans) issued by ABPCI Pacific Funding LP, pursuant to the Credit Agreement dated as of November 1, 2022, among ABPCI Pacific Funding LP, as Borrower; Natixis, New York Branch, as Administrative Agent; U.S. Bank Trust Company, National Association, as Collateral Agent, Collateral Administrator and Custodian; and the Lenders party thereto.

The ratings on the Loans address the timely payment of interest (excluding Capped Amounts and the additional two percent of interest payable at the Post-Default Rate) (as defined in the Credit Agreement referred to above) and the ultimate payment of principal on or before the Stated Maturity (as defined in the Credit Agreement referred to above).

RATING RATIONALE
The rating actions are a result of DBRS Morningstar’s new issue analysis of the transaction. The Borrower is a bankruptcy-remote special-purpose vehicle established by AB Private Credit Investors LLC (ABPCI) as the Collateral Manager. The Loans are collateralized primarily by a portfolio of U.S. middle-market corporate loans and other corporate obligations. ABPCI Pacific Funding LP is managed by ABPCI, an affiliate of AllianceBernstein L.P. DBRS Morningstar considers ABPCI an acceptable collateralized loan obligation (CLO) manager.

The ratings reflect the following primary considerations:

(1) The Credit Agreement, dated November 1, 2022.
(2) The integrity of the transaction structure.
(3) DBRS Morningstar’s assessment of the portfolio quality.
(4) Adequate credit enhancement to withstand 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.

The transaction has a dynamic structural configuration that permits variations of certain asset metrics via the selection of an applicable row from a collateral quality matrix (the CQM). Depending on a given Diversity Score, the following metrics will be selected accordingly from the applicable row of the CQM: Diversity Score, DBRS Morningstar Risk Score, Weighted Average Spread (WAS), and Weighted Average Recovery Rate (WARR). DBRS Morningstar analyzed each structural configuration as a unique transaction and all configurations (rows) passed the applicable DBRS Morningstar rating stress levels.

Some particular strengths of the transaction are (1) the collateral quality, which will consist mostly of senior-secured middle market loans; (2) the expected adequate diversification of the portfolio of collateral obligations (Diversity Score, matrix driven); and (3) the Collateral Manager’s expertise in CLOs and overall approach to selection of Collateral Obligations.

Some challenges were identified: (1) the expected weighted-average credit quality of the underlying obligors may fall below investment grade (per the CQM) and the majority may not have public ratings once purchased and (2) the underlying collateral portfolio may be insufficient to redeem the Loans in an Event of Default.

DBRS Morningstar analyzed the transaction using the DBRS Morningstar CLO Asset model and its proprietary cash flow engine, which incorporate assumptions regarding principal amortization, amount of interest generated, default timings, and recovery rates, among other credit considerations referenced in the DBRS Morningstar rating methodology “Cash Flow Assumptions for Corporate Credit Securitizations.” Model-based analysis produced satisfactory results that supported the above-assigned ratings on the Loans.

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.

For more information regarding DBRS Morningstar’s additional adjustment for select industries related to the Coronavirus Disease (COVID-19), please see its May 18, 2020, commentary, “CLO Risk Exposure to the Coronavirus Disease (COVID-19)” at https://www.dbrsmorningstar.com/research/361112.

The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios For Rated Sovereigns: September 2022 Update,” published on September 19, 2022 (https://www.dbrsmorningstar.com/research/402907).These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse coronavirus pandemic scenarios, which were first published in April 2020.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, or Governance (ESG) factors that had a significant or relevant effect on the credit analysis.

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 www.dbrsmorningstar.com/research/396929 (May 17, 2022).

Notes:
The principal methodologies are Rating CLOs and CDOs of Large Corporate Credit (January 26, 2022) and Cash Flow Assumptions for Corporate Credit Securitizations (January 26, 2022), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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.

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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