DBRS Morningstar Assigns AA (sf) Rating to Class A-R-2 Loans, Confirms AA (sf) Ratings on the Class A-R-1 Loans and Class A-T Loans of Cerberus Redwood Levered B LLC

DBRS, Inc. (DBRS Morningstar) assigned a rating of AA (sf) to the Class A-R-2 Loans and confirmed the AA (sf) ratings on the Class A-R-1 Loans (formerly the Class A-R Loans) and the Class A-T Loans (together with the Class A-R-1 Loans and the Class A-R-2 Loans, the Loans) issued by Cerberus Redwood Levered B LLC, pursuant to Amendment No. 5 to Credit Agreement, dated as of April 24, 2020, among Cerberus Redwood Levered B LLC (the Borrower), Cerberus Redwood Levered Loan Opportunities Fund B, L.P. (the Servicer and Retention Provider), Natixis, New York Branch (the Administrative Agent), U.S. Bank National Association (the Collateral Agent and Custodian; rated AA (high) with a Stable trend by DBRS Morningstar), and the Lenders thereto.

The confirmation and assignment of the ratings on the Loans reflects the execution of Amendment No. 5 to the Credit Agreement dated as of April 24, 2020. The rating confirmations by DBRS Morningstar do not signify the approval of the amendment by DBRS Morningstar or an opinion by DBRS Morningstar as to whether the amendment is beneficial or detrimental to the holders of the securities.

The 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).

The Loans will be collateralized primarily by a portfolio of U.S. middle-market corporate loans and other corporate obligations. Cerberus Redwood is serviced by Cerberus Redwood Levered Loan Opportunities Fund B, L.P., an affiliate of Cerberus Capital Management II, L.P. DBRS Morningstar considers Cerberus Redwood Levered Loan Opportunities Fund B, L.P to be an acceptable collateralized loan obligation manager.

To assess portfolio credit quality, DBRS Morningstar provides a credit estimate or internal assessment for each non-financial 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 a rating to the Loans.

The rating reflects the following primary considerations:

(1) Amendment No. 5 to the Credit Agreement, dated as of April 24, 2020.
(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 as to how collateral performance could deteriorate due to macroeconomic stresses brought about by the Coronavirus Disease (COVID-19) pandemic.
(6) DBRS Morningstar’s assessment of the origination, servicing, and collateralized loan obligation management capabilities of Cerberus Redwood Levered Loan Opportunities Fund B, L.P., an affiliate of Cerberus Capital Management II, L.P.
(7) Information about the extent of the impact of the coronavirus on originations, underwriting, operations, and portfolio performance to date, which was shared with DBRS Morningstar by Cerberus Redwood Levered Loan Opportunities Fund B, L.P., an affiliate of Cerberus Capital Management II, L.P..

The coronavirus broke out in China at the end of 2019 and has since spread to over 150 countries throughout the world, including the United States. This outbreak (and any future outbreaks) of the coronavirus has led (and may continue to lead) to significant adverse disruptions to the economies of the nations in which it has arisen, as well as the global economy in general. This may result in a deterioration in the financial condition of many companies and obligors, with some experiencing the impact of such negative economic trends more than others.

In conjunction with DBRS Morningstar’s commentary “Global Macroeconomic Scenarios: Implications for Credit Ratings,” published on April 16, 2020, DBRS Morningstar applies adjustments to assumptions for the collateralized loan obligation asset class that consider the moderate economic scenario outlined in the commentary. The adjustments include a higher default assumption for the weighted-average credit quality of the collateral obligation current portfolio. To derive the higher default assumption, DBRS Morningstar notches ratings for obligors in certain industries and obligors by various rating levels based on their perceived exposure to the adverse disruptions of the coronavirus pandemic. Applying a higher default assumption would result in losses in excess of the original default expectations for the affected classes of notes. The default expectations may be adjusted further should the duration or severity of the adverse disruptions due to coronavirus change.

In the moderate economic scenario, DBRS Morningstar currently expects that the coronavirus will begin to be contained within the second quarter of 2020, resulting in a gradual relaxation of stay-at-home measures and nonessential business closures, allowing a gradual economic recovery to begin within the third quarter of 2020. More information regarding DBRS Morningstar’s simplified set of macroeconomic scenarios for select economies related to the coronavirus pandemic can be found in its April 16, 2020, publication titled “Global Macroeconomic Scenarios: Implications for Credit Ratings”: https://www.dbrsmorningstar.com/research/359679.

For collateralized loan obligations, DBRS Morningstar ran an additional higher default stress on the weighted-average (WA) DBRS Morningstar Risk Score of the current collateral obligation pool, and compared the stressed WA Risk Score with the Maximum DBRS Morningstar Risk Scores allowed in the Collateral Quality Matrix. DBRS Morningstar observed that the Collateral Quality Matrix contained sufficient rows and columns that would allow for higher stressed DBRS Morningstar Risk Scores, and therefore a higher default probability on the collateral pool, while still remaining in compliance with the other Collateral Quality Tests, such as WA Spread and Diversity Score. The results of this stress indicate that the Loans can withstand an additional higher default stress commensurate with a moderate-scenario impact of the coronavirus.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

DBRS Morningstar notes that the above press release was amended on May 19, 2020, to add the full list of related methodologies and predictive models. The amendment was minor and would not impact the understanding of the reader.

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

The principal methodology is Rating CLOs and CDOs of Large Corporate Credit (February 28, 2020), 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.

This rating is endorsed by DBRS Ratings Limited (DBRS Morningstar) for use in the European Union. The following additional regulatory disclosures apply to endorsed ratings:

The last rating action on this transaction took place on January 16, 2020, when DBRS Morningstar confirmed the ratings on the Loans.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Lead Analyst: Quan Yoon, Assistant Vice President, U.S. Structured Credit
Rating Committee Chair: Jerry van Koolbergen, Managing Director, Head of U.S. Structured Credit
Initial Rating Date: June 16, 2017

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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

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https://www.dbrsmorningstar.com/research/357452/rating-clos-and-cdos-of-large-corporate-credit
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