DBRS Morningstar Confirms Provisional Credit Ratings, Removes Under Review with Developing Implications Status, from the Advances of Gemini Notes Issuer LLC

DBRS Inc. (DBRS Morningstar) confirmed the following provisional credit ratings on the Class A Notes, the Class B Notes, the Class C Notes, and the Class D Notes (together, the Secured Notes) issued by Gemini Notes Issuer LLC. The Secured Notes are issued pursuant to the Indenture, dated July 28, 2023, entered into between Gemini Notes Issuer LLC, as the Issuer and U.S. Bank Trust Company, National Association, as Trustee:

-- Class A Notes at A (sf)
-- Class B Notes at BBB (sf)
-- Class C Notes at BB (low) (sf)
-- Class D Notes at B (sf)

At the same time, DBRS Morningstar removed the Under Review with Developing Implications designations of the provisional credit ratings, where they were placed on November 9, 2023.

The provisional credit rating on the Class A Notes addresses the timely payment of interest (excluding any Defaulted Interest, as defined in the Indenture) and the ultimate return of principal on or before the Stated Maturity (as defined in the Indenture). The provisional credit ratings on the Class B Notes, the Class C Notes, and the Class D Notes address the ultimate payment of interest (excluding any Defaulted Interest, as defined in the Indenture) and the ultimate return of principal on or before the Stated Maturity (as defined in the Indenture).

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating actions are a result of DBRS Morningstar’s review of the transaction performance by applying the “Global Methodology for Rating CLOs and Corporate CDOs” (the CLO Methodology), released on October 22, 2023. On November 9, 2023, the credit ratings were placed Under Review with Developing Implications to allow for DBRS Morningstar to review the credit ratings using the CLO Methodology. The Stated Maturity is July 25, 2035. The Reinvestment Period ends on July 25, 2027. DBRS Morningstar expects to finalize its provisional credit ratings on the Secured Notes on or after the Effective Date, when the Eligibility Criteria, including the Collateral Quality Tests are in compliance.

The Secured Notes are collateralized primarily by a portfolio of U.S. middle-market corporate loans. Gemini Notes Issuer LLC is managed by 26North Direct Lending II LP, an affiliate of 26North Partners LP. DBRS Morningstar considers 26North Direct Lending II LP to be an acceptable middle-market corporate loan manager.

In its analysis, DBRS Morningstar considered the following aspects of the transaction:
(1) The Indenture, dated as of July 28, 2023.
(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 middle-market corporate loan management capabilities of 26North Direct Lending II LP.

DBRS Morningstar monitors transaction performance metrics based on the periodicity of the transaction’s reporting. The performance metrics include Collateral Quality Tests, Coverage Tests, Concentration Limitations, and Performing Collateral Par. As of October 31, 2023, the Borrower is failing each of the Interest Coverage Ratio Tests and the Diversity Score Test, as the transaction is still in its ramp up period and has not yet reached the Effective Date. There were no defaulted obligations registered in the underlying portfolio as of the October 31, 2023 trustee report date. The current transaction performance is within DBRS Morningstar’s expectation, which supports the credit rating confirmations on the Secured Notes.

The coverage and collateral quality test reported values and thresholds, respectively, that DBRS Morningstar reviewed are as follows:

Coverage Tests:
Class A Overcollateralization Ratio Test: Actual 170.51%; Threshold 140.00%
Class B Overcollateralization Ratio Test: Actual 151.56%; Threshold 115.00%
Class C Overcollateralization Ratio Test: Actual 132.01%; Threshold 113.00%
Class D Overcollateralization Ratio Test: Actual 127.88%; Threshold 113.00%
Class A Interest Coverage Ratio Test: Actual 139.95%; Threshold 150.00%
Class B Interest Coverage Ratio Test: Actual 120.71%; Threshold 130.00%
Class C Interest Coverage Ratio Test: Actual 98.35%; Threshold 120.00%
Class D Interest Coverage Ratio Test: Actual 93.20%; Threshold 120.00%

Advance Rate Tests:
Class A Advance Rate: Actual 59.29%; Threshold 60.00%
Class B Advance Rate: Actual 66.70%; Threshold 67.50%
Class C Advance Rate: Actual 76.58%; Threshold 77.50%
Class D Advance Rate: Actual 79.05%; Threshold 80.00%

Collateral Quality Tests:
Minimum Diversity Score Test: Actual 2; Threshold 8
Maximum DBRS Morningstar Risk Score Test: Actual 31.87%; Threshold 40.00%
Minimum WA Spread: Actual 6.46%; Threshold 5.75%
Minimum Average Recovery Rate Test: Actual 60.50%; Threshold 59.04%
Maximum Weighted Average (WA) Maturity Date Test: Actual 6.74 years; Threshold 8.00 years

DBRS Morningstar’s credit ratings on the Secured Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations include the interest at the Interest Rate and the principal amounts on the Secured Notes, as well as the Deferred Interest on the Class B Notes, the Class C Notes, and the Class D Notes (each capitalized term as defined in the Indenture).

DBRS Morningstar’s credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, the provisional ratings on the Notes do not address any Defaulted Interest on the Secured Notes (each capitalized term as defined in the Indenture).

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The DBRS Morningstar short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios For Rated Sovereigns - December 2023 Update”, published on December 19, 2023 (https://www.dbrsmorningstar.com/research/425506). These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse COVID-19 pandemic scenarios, which were first published in April 2020

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.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance 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 https://www.dbrsmorningstar.com/research/416784 (July 4, 2023).

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

The principal methodology applicable to the credit ratings is the “Global Methodology for Rating CLOs and Corporate CDOs” (October 22, 2023; https://www.dbrsmorningstar.com/research/422269).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Operational Risk Assessment for Collateralized Loan Obligations (CLOs) and Corporate Collateralized Debt Obligations (CDOs) (September 14, 2023; https://www.dbrsmorningstar.com/research/420608)

-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023;
https://www.dbrsmorningstar.com/research/415687)

-- Legal Criteria for U.S. Structured Finance (December 7, 2023;
https://www.dbrsmorningstar.com/research/425081/legal-criteria-for-us-structured-finance)

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