DBRS Morningstar Confirms Credit Rating, Removes Under Review with Developing Implications Status From the Notes Representing the Advances to Cerberus ND Levered LLC

DBRS, Inc. (DBRS Morningstar) confirmed its credit rating of AAA (sf) on the Notes representing the Advances (the Advances) to Cerberus ND Levered LLC. At the same time, DBRS Morningstar removed the rating from Under Review with Developing Implications where it had been placed on November 9, 2023.

The Advances are issued pursuant to the Amended and Restated Loan, Security and Servicing Agreement, dated as of January 31, 2020 (as amended by the First Amendment dated as of July 6, 2020, and the Second Amendment dated as of February 17, 2022) (the Loan Agreement), by and among Cerberus ND Levered LLC as the Borrower; Cerberus ND Credit Holdings LLC as the Servicer; Capital One, National Association (rated “A” with a Stable trend by DBRS Morningstar) as the Administrative Agent, Hedge Counterparty, Swingline Lender, and Arranger; U.S. Bank Trust Company, National Association (rated AA (high) with a Stable trend by DBRS Morningstar) as Collateral Custodian; U.S. Bank, National Association (rated AA (high) with a Stable trend by DBRS Morningstar) as Document Custodian; and each of the Lenders from time to time party thereto.

The rating on the Advances addresses the timely payment of interest, other than interest attributable to Excess Interest Amounts (as defined in the amended Loan Agreement), and the ultimate payment of the aggregate principal amount of all Advances outstanding on or before the Facility Maturity Date (as defined in the amended Loan Agreement).

The Advances are collateralized primarily by a portfolio of U.S. middle-market corporate loans. Cerberus ND Levered LLC is serviced by Cerberus ND Credit Holdings LLC, an affiliate of Cerberus Capital Management II, L.P. DBRS Morningstar considers Cerberus ND Credit Holdings LLC to be an acceptable collateralized loan obligation (CLO) servicer.

CREDIT RATING RATIONALE
The credit rating action is 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 rating was placed Under Review with Developing Implications to allow for DBRS Morningstar to review the credit ratings using the CLO Methodology. The Stated Maturity is February 19, 2029. The Reinvestment Period ends on February 17, 2025.

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 in compliance with all performance metrics. The current transaction performance is within DBRS Morningstar’s expectations, which supports the confirmation on the Advances.

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

Coverage Tests:
Overcollateralization Ratio Test: Actual 233.97%; Threshold 162.60%
Interest Coverage Test: Actual 380.01%; Threshold 150.00%
Portfolio Advance Rate: Actual 42.74%; Threshold 53.00%

Collateral Quality Tests:
Maximum Weighted Average (WA) Life Test: Actual 2.84 years; Threshold 5.25 years
Minimum Diversity Score Test: Actual 42; Threshold 30
Maximum DBRS Morningstar Risk Score Test: Actual 24.27; Threshold 34.00
Minimum WA Spread: Actual 7.40% Threshold 6.25%

Some particular strengths of the transaction are (1) the collateral quality, which consists mostly of senior-secured middle market loans; (2) the adequate diversification of the portfolio of collateral obligations (actual Diversity Score of 42 versus the threshold Diversity Score of 30); and (3) the Collateral Manager’s expertise in CLOs and overall approach to the selection of Collateral Obligations. Some challenges were identified as follows: (1) up to 35% of the portfolio pool may consist of long-dated assets and (2) the underlying collateral portfolio may be insufficient to redeem the Advances in an Event of Default.

The transaction is performing according to the contractual requirements of the Loan Agreement. As of October 31, 2023, the Borrower is in compliance with all coverage and collateral quality tests as well as concentration limitations for portfolio collateral obligations. There were around $27.79 million in defaulted obligations registered in the underlying portfolio as of the October 31, 2023, trustee report date.

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 2023 Update,” published on September 28, 2023 (https://www.dbrsmorningstar.com/research/421227). These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse 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) pandemic, 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.

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

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed credit ratings:

The last rating action on this transaction took place on November 9, 2023, when DBRS Morningstar placed the credit rating on the Advances Under Review with Developing Implications.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

Lead Analyst: Stuart Rothenberg, Senior Vice President, Structured Credit
Rating Committee Chair: Jerry van Koolbergen, Managing Director, Structured Credit
Initial Rating Date: January 31, 2020

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)

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