DBRS Confirms Ratings on the Class A-1 Notes and the Class A Loans Issued by Cerberus Loan Funding XXIV L.P.

DBRS, Inc. (DBRS Morningstar) confirmed its AAA (sf) rating on the Class A-1 Senior Secured Floating-Rate Notes (the Class A-1 Notes) issued by Cerberus Loan Funding XXIV L.P. (the Issuer) pursuant to the Indenture dated as of August 7, 2018, among Cerberus Loan Funding XXIV L.P., as Issuer; Cerberus LFGP XXIV, LLC, as General Partner; Cerberus Co-Issuer XXIV LLC, as Co-Issuer; Cerberus Business Finance, LLC, as Servicer; and Wells Fargo Bank, National Association, as Trustee. DBRS Morningstar also confirmed its AAA (sf) rating on the Class A Senior Secured Loans (the Class A Loans) incurred by the Issuer under the Class A Loan Agreement, dated as of August 7, 2018, among the Issuer; Co-Issuer; the General Partner; Wells Fargo Bank, National Association as the Class A Loan Agent; and each Class A Lender.

The ratings on the Class A-1 Notes and the Class A Loans address the timely payment of interest and the ultimate payment of principal on or before the Stated Maturity (as defined in the Indenture referred to above).

The debt issued by Cerberus Loan Funding XXIV L.P. is collateralized primarily by a portfolio of U.S. middle-market corporate loans. Cerberus Loan Funding XXIV L.P. is managed by Cerberus Business Finance, LLC, as Servicer.

The confirmed ratings reflect the following:
(1) The Indenture dated as of August 7, 2018.
(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 collateralized loan obligation management capabilities of Cerberus Business Finance, LLC.

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 a rating to the 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 collateralized loan obligation (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 rated debt. 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 debt in order to achieve the rating. The results of this stress indicate that the Class A-1 Notes and Class A 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:

The last rating action on this transaction took place on August 7, 2019, when DBRS Morningstar confirmed both ratings.

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
Rating Committee Chair: Jerry van Koolbergen
Initial Rating Date: June 29, 2018

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

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

-- Rating CLOs and CDOs of Large Corporate Credit (July 21, 2020) and CLO Asset Model Version 2.2.3, https://www.dbrsmorningstar.com/research/364310/rating-clos-and-cdos-of-large-corporate-credit
-- Cash Flow Assumptions for Corporate Credit Securitizations (July 21, 2020),
https://www.dbrsmorningstar.com/research/357453/cash-flow-assumptions-for-corporate-credit-securitizations
-- Operational Risk Assessment for Collateralized Loan Obligation (CLO) and Collateralized Debt Obligation (CDO) Managers of Large Corporate Credits (September 24, 2019),
https://www.dbrsmorningstar.com/research/350807/operational-risk-assessment-for-collateralized-loan-obligation-clo-and-collateralized-debt-obligation-cdo-managers-of-large-corporate-credits
-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 4, 2020),
https://www.dbrsmorningstar.com/research/361961/interest-rate-stresses-for-us-structured-finance-transactions
-- Legal Criteria for U.S. Structured Finance (January 21, 2020),
https://www.dbrsmorningstar.com/research/355719/legal-criteria-for-us-structured-finance