DBRS Morningstar Confirms Ratings on the Loans of Cerberus PSERS Levered LLC, Discontinues EU and UK Endorsements

DBRS, Inc. (DBRS Morningstar) confirmed its AA (sf) ratings on the Class A-R Loans and the Class A-T Loans (together, the Loans), issued by Cerberus PSERS Levered LLC, up to the total commitment of $320,000,000 permitted under the Loans.

The Loans were issued pursuant to the Credit Agreement dated as of November 12, 2015 (as amended by Amendment No. 1 dated as of March 1, 2016; Amendment No. 2 dated as of August 30, 2016; Amendment No. 3 dated as of November 17, 2016; Amendment No. 4 dated as of May 15, 2017; Amendment No. 5 dated as of December 8, 2017; Amendment No. 6 dated as of August 16, 2018; Amendment No. 7 dated as of November 20, 2018; Amendment No. 8 dated as of November 20, 2020; and Amendment No. 9 dated as of May 17, 2021), among Cerberus PSERS Levered LLC as the Borrower; Cerberus PSERS Levered Loan Opportunities Fund, L.P. as the Servicer; Natixis, New York Branch as the Administrative Agent; U.S. Bank National Association (rated AA (high) with a Negative trend by DBRS Morningstar) as the Collateral Agent; and the Lenders party thereto.

Additionally, as of May 17, 2021, DBRS Ratings Limited and DBRS Ratings GmbH will discontinue the endorsement of the ratings of the Loans issued by the Borrower/U.S. Structured Credit ratings issued by DBRS, Inc. for use in the United Kingdom and the European Union, assigned pursuant to the “Rating CLOs and CDOs of Large Corporate Credit” (February 8, 2021).

The ratings on the Loans of Cerberus PSERS Levered LLC had been endorsed by DBRS Ratings Limited and DBRS Ratings GmbH based on their potential sale in the United Kingdom and/or the European Union but not at the specific request of any issuers or investors.

The rating confirmations on the Loans reflect the execution of Amendment No. 9 to the Credit Agreement dated as of May 17, 2021. The rating confirmations do not signify DBRS Morningstar’s approval of the amendment or its opinion 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 are collateralized primarily by a portfolio of U.S. middle-market corporate loans and other corporate obligations. The Servicer and collateralized loan obligation (CLO) manager is Cerberus PSERS Levered Loan Opportunities Fund, L.P., an affiliate of Cerberus Capital Management II, L.P. DBRS Morningstar considers Cerberus PSERS Levered Loan Opportunities Fund, L.P to be an acceptable (CLO manager.

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 DBRS Morningstar uses when rating the Loans.

The ratings reflect the following primary considerations:

(1) Amendment No. 9 to the Credit Agreement, dated as of May 17, 2021.
(2) The Credit Agreement, dated as of November 12, 2015, as amended from time to time.
(3) The integrity of the transaction’s structure.
(4) DBRS Morningstar’s assessment of the portfolio quality.
(5) Adequate credit enhancement to withstand DBRS Morningstar’s projected collateral loss rates under various cash flow stress scenarios.
(6) DBRS Morningstar’s assessment as to how collateral performance could deteriorate based on macroeconomic stresses brought about by the Coronavirus Disease (COVID-19) pandemic.
(7) DBRS Morningstar’s assessment of the origination, servicing, and CLO management capabilities of Cerberus PSERS Levered Loan Opportunities Fund, L.P., an affiliate of Cerberus Capital Management II, L.P.
(8) Information about the extent of the coronavirus’ impact on originations, underwriting, operations, and portfolio performance to date, which Cerberus PSERS Levered Loan Opportunities Fund, L.P. shared with DBRS Morningstar.

As the coronavirus pandemic 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, but also the overall global economy with diminished demand for goods and services as well as disrupted supply chains. The effects of the pandemic 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 its updated commentary, “Global Macroeconomic Scenarios: March 2021 Update,” published on March 17, 2021, 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 adjustment on the 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 would allow for higher stressed DBRS Morningstar Risk Scores and therefore a higher default probability on the collateral pool, while still complying with the other Collateral Quality Tests, such as WA Spread and Diversity Score. The results of this stress indicate that the rated 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 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 March 17, 2021, updated commentary, “Global Macroeconomic Scenarios: March 2021 Update,” at https://www.dbrsmorningstar.com/research/375376.

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.

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/373262.

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

The principal methodology is Rating CLOs and CDOs of Large Corporate Credit (February 8, 2021), 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.

Ratings endorsed by DBRS Ratings Limited and DBRS Ratings GmbH for use in the United Kingdom and the European Union are marked as such on the DBRS Morningstar website in their respective rating tables. As part of this discontinuation, these markings will be removed from the relevant ratings. However, the language and related statements in previously published press releases will not be changed retroactively and will remain as part of DBRS Morningstar’s historical record.

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

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