Morningstar DBRS Confirms Its AA (sf) Credit Ratings on the Class A-R Loans and A-T Loans of Cerberus 2112 Levered LLC

DBRS, Inc. (Morningstar DBRS) DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings of AA (sf) on the Class A-R Loans and the A-T Loans, (together, the Loans) issued by Cerberus 2112 Levered LLC, pursuant to the Credit Agreement dated October 8, 2020 (as amended by Amendment No. 1 dated December 23, 2020; Amendment No. 2 dated July 20, 2021; Amendment No. 3 dated February 4, 2022; Amendment No. 4 dated October 7, 2022; Amendment No. 5 dated March 3, 2023; Amendment No. 6 dated September 13, 2023; Amendment No. 7 dated as of October 7, 2024; and Amendment No. 8 dated as of December 11, 2024), among Cerberus 2112 Levered LLC as the Borrower; Cerberus 2112 Credit Holdings LLC as the Servicer; Natixis, New York Branch as the Administrative Agent; U.S. Bank Trust Company, National Association (rated AA with a Stable trend by Morningstar DBRS) as the Collateral Agent; U.S. Bank National Association (rated AA with a Stable trend by Morningstar DBRS) as the Custodian; and the Lenders party thereto.

The credit ratings on the Loans address the timely payment of interest (excluding any Excess Interest Amounts and any additional interest payable pursuant to Section 2.5(c)(ii), as defined in the amended Credit Agreement referred to above) and the ultimate payment of principal on or before the Final Maturity Date (as defined in the amended Credit Agreement referred to above).

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating actions are a result of Amendment No. 8 to the Credit Agreement (the Amendment) dated December 11, 2024, which increased the Total Class A-T Commitment to $315,000,000 from $239,500,000 and the Total Class A-R Commitment to $185,000,000 from $115,100,000, updated the collateral quality matrix (the CQM, as defined in Schedule I of the Credit Agreement), and introduced a Permitted Distributions concept, among other changes.

Cerberus 2112 Levered LLC is a cash flow collateralized loan obligation (CLO) transaction that is collateralized primarily by a portfolio of U.S. senior secured middle-market (MM) corporate loans. The Reinvestment Period scheduled end date is October 7, 2026. The Final Maturity Date is October 7, 2033.

In its analysis, Morningstar DBRS considered the following aspects of the transaction:
(1) The Credit Agreement, dated October 8, 2020, as amended from time to time.
(2) The integrity of the transaction's structure pursuant to the Amendment.
(3) Morningstar DBRS' assessment of the portfolio quality.
(4) Relevant credit enhancement in the form of subordination and excess spread.
(5) Adequate credit enhancement to withstand Morningstar DBRS's projected collateral loss rates under various cash flow stress scenarios.
(6) Morningstar DBRS' assessment of the origination, servicing, and collateralized loan obligation (CLO) management capabilities of Cerberus 2112 Credit Holdings LLC, an affiliate of Cerberus Capital Management II, L.P.

The transaction has a dynamic structural configuration, which permits variations of certain asset metrics via a selection of an applicable row from a CQM. Depending on a given Diversity Score (DScore), the following metrics are selected accordingly from the applicable row of the CQM: Morningstar DBRS Risk Score, Advance Rate, Overcollateralization (OC) Levels, and Weighted-Average (WA) Spread Level. Morningstar DBRS analyzed each structural configuration as a unique transaction and all configurations (rows) passed the applicable Morningstar DBRS rating stress levels. The Coverage Tests and triggers as well as the Collateral Quality Tests that Morningstar DBRS modeled during its analysis are presented below:

-- OC Ratio Test: subject to the CQM: min 137.06%
-- Interest Coverage Test: 125.00%
-- Maximum WA Life Test: 6.00 years
-- Minimum DScore: subject to the CQM: min 8
-- Maximum Morningstar DBRS Risk Score Test: subject to the CQM: max 49.13%
-- Minimum WA Morningstar DBRS Recovery Rate Test: subject to the CQM: min 33.34%
-- Minimum WA Spread Test, subject to the CQM: min 6.00%
-- Minimum WA Fixed-Rate Coupon Test: 8.00%

Some particular strengths of the transaction are (1) collateral quality, which consists primarily of senior-secured floating-rate middle market loans; (2) the adequate diversification of the current portfolio of collateral obligations; and (3) the Collateral Manager's expertise in CLOs and overall approach to selection of Collateral Obligations.

Some of the challenges identified are: (1) the majority of the underlying loans do not have public ratings and require either a credit estimate and/or a private rating from DBRS Morningstar and (2) the underlying collateral portfolio may be insufficient to redeem the Loans in an Event of Default.

As of October 1, 2024, the transaction is in compliance with all Collateral Quality Tests, Coverage Tests, and Concentration Limitations. There were $29.3 million in defaulted obligations in the underlying portfolio.

Morningstar DBRS modeled the proposed amendment in the transaction using the Morningstar DBRS CLO Insight Model and its proprietary cash flow engine, which incorporated assumptions regarding principal amortization, amount of interest generated, default timings, and recovery rates. This analysis supported the confirmation of the credit ratings on the Loans.

Considering the transaction performance, its legal aspects, and the results produced by the models, Morningstar DBRS confirmed its credit ratings on the Loans.

To assess portfolio credit quality, Morningstar DBRS provides a credit estimate or internal assessment for each nonfinancial corporate obligor in the portfolio not rated by Morningstar DBRS. Credit estimates are not ratings; rather, they represent a model-driven default probability for each obligor that Morningstar DBRS uses when rating the Loans.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transaction's respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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 Morningstar DBRS 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.

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

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

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 (November 19, 2024) https://dbrs.morningstar.com/research/443207 and the CLO Insight Model v.1.0.1.4.

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

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.

Morningstar DBRS 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.

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

-- Legal Criteria for U.S. Structured Finance (December 3, 2024) https://dbrs.morningstar.com/research/444064

-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024) https://dbrs.morningstar.com/research/428623

-- Operational Risk Assessment for Collateralized Loan Obligation (CLO) and Collateralized Debt Obligation (CDO) (August 23, 2024) https://dbrs.morningstar.com/research/438315

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.