DBRS Morningstar Assigns Rating to the Class A-T-2 Loans and Confirms Ratings on the Class A-R Loans and Class A-T-1 Loans Issued by Cerberus Onshore Levered IV LLC

DBRS, Inc. (DBRS Morningstar) assigned a rating of AA (sf) to the Class A-T-2 Loans issued by Cerberus Onshore Levered IV LLC (the Borrower), up to the total commitment permitted under the Class A-T-2 Loans of $75,000,000. DBRS Morningstar also confirmed its ratings of AA (sf) on the Borrower’s Class A-T-1 Loans (formerly the Class A-T Loans) and on the Class A-R Loans (together with the Class A-T-1 Loans and the Class A-T-2 Loans, the Loans), up to the total commitment permitted under the Class A-T-1 Loans of $142,000,000 and the Class A-R Loans of $258,000,000.

The rating actions are being taken pursuant to the execution of the Amendment No. 2 to the Credit Agreement, dated as of July 29, 2020, which modifies the Credit Agreement dated as of July 16, 2019 (which the Commitment Increase Agreement, previously amended and modified as of September 23, 2019, October 11, 2019, and February 5, 2020), among Cerberus Onshore Levered IV LLC, as Borrower; Cerberus Levered IV Holdings LLC, as Servicer and Retention Provider; the Lenders referred to therein; Natixis, New York Branch, as Administrative Agent; and U.S. Bank National Association (rated AA (high) with a Negative trend by DBRS Morningstar), as Collateral Agent and Custodian.

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) and the ultimate payment of principal on or before the Final Maturity Date (as defined in the Credit Agreement referred to above).

Cerberus Onshore Levered IV LLC’s Loans will be collateralized primarily by a portfolio of U.S. middle-market corporate loans. Cerberus Levered IV Holdings LLC, an affiliate of Cerberus Capital Management II, L.P., will service Cerberus Onshore Levered IV LLC. DBRS Morningstar considers the Servicer to be an acceptable collateralized loan obligation (CLO) servicer.

The above ratings reflect the following primary considerations:

(1) Amendment No. 2 to Credit Agreement, dated as of July 29, 2020.
(2) The Amendment and Commitment Increase Agreement, dated as of October 11, 2019, and February 5, 2020.
(3) The Credit Agreement dated July 16, 2019, as amended.
(4) The integrity of the transaction structure.
(5) DBRS Morningstar’s assessment of the portfolio quality.
(6) Adequate credit enhancement to withstand projected collateral loss rates under various cash flow stress scenarios.
(7) DBRS Morningstar’s assessment of the origination, servicing, and CLO management capabilities of the Servicer.

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.

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.

As the Coronavirus Disease (COVID-19) spread around the world, certain countries imposed quarantines and lockdowns, including the United States, which accounts for more than one-fourth of confirmed cases worldwide. The coronavirus pandemic has negatively affected not only the economies of the nations most afflicted with the coronavirus, but also the overall global economy with diminished demand for goods and services as well as disrupted supply chains. This may result in deteriorated financial conditions for many companies and obligors, some of which will experience the effects of such negative economic trends more than others. At the same time, governments and central banks in multiple regions, including the United States and Europe, have taken significant measures to mitigate the economic fallout from the coronavirus pandemic.

In conjunction with DBRS Morningstar’s commentary, “Global Macroeconomic Scenarios: Implications for Credit Ratings,” published on April 16, 2020, and updated on July 22, 2020, DBRS Morningstar further considers additional adjustments to assumptions for the CLO asset class that consider the moderate economic scenario outlined in the commentary. The adjustments include a higher default assumption for the weighted-average (WA) credit quality of the current collateral obligation portfolio. To derive the higher default assumption, DBRS Morningstar notches ratings for obligors in certain industries and obligors at various rating levels based on their perceived exposure to the adverse disruptions caused by the coronavirus. Considering a higher default assumption would result in losses that exceed the original default expectations for the affected classes of notes. DBRS Morningstar may adjust the default expectations further if there are changes in the duration or severity of the adverse disruptions.

For CLOs, DBRS Morningstar ran an additional higher default stress on the WA DBRS Morningstar Risk Score of the current collateral obligation pool, and this stressed modeling pool was run through the Monte Carlo simulation component of the DBRS Morningstar CLO Asset Model to generate a stressed default rate. DBRS Morningstar then performed a cash flow model analysis to determine the breakeven default rate for the Loans. The breakeven default rate is computed over nine combinations of default timing and interest rate stresses. The breakeven default rate must exceed the lifetime total default rate generated by the DBRS Morningstar CLO Asset Model for the Loans in order to achieve the rating. 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.

For more information regarding DBRS Morningstar’s simplified set of macroeconomic scenarios for select economies related to the coronavirus, please see please see its April 16, 2020, commentary “Global Macroeconomic Scenarios: Implications for Credit Ratings” at https://www.dbrsmorningstar.com/research/359679; its April 22, 2020, commentary “Global Macroeconomic Scenarios: Application to Credit Ratings” at https://www.dbrsmorningstar.com/research/359903; and its July 22, 2020, updated commentary, “Global Macroeconomic Scenarios: July Update” at https://www.dbrsmorningstar.com/research/364318.

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

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

The principal methodology is Rating CLOs and CDOs of Large Corporate Credit (July 21, 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:

This is the first DBRS Morningstar rating on the Class A-T-2 Loans financial instrument. This rating on the Class A-T-2 Loan concerns a newly issued financial instrument.

The last rating action on this transaction took place on October 11, 2019.

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, U.S. Structured Credit
Initial Rating Date: July 17, 2019

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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