DBRS Morningstar 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 or the Notes) issued by Cerberus Loan Funding XXIV L.P. (the Issuer) pursuant to the Indenture dated 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 (together with the Issuer, the Co-Issuers); Cerberus Business Finance, LLC (CBF), as Servicer; and Wells Fargo Bank, National Association (rated AA with a Negative Trend by DBRS Morningstar), as Trustee. DBRS Morningstar also confirmed its AAA (sf) rating on the Class A Senior Secured Loans (the Class A Loans or the Loans) issued by Cerberus Loan Funding XXIV L.P. as the Borrower pursuant to the Class A Loan Agreement, dated August 7, 2018, among the Borrower; Cerberus Co-Issuer XXIV LLC as the Co-Borrower (together, with the Borrower, the Co-Borrowers); the General Partner; the Trustee; and each of the Class A Lenders hereto.

The ratings on the Notes and the Loans (together, the Debt) address the timely payments of interest and the ultimate payments 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 CBF as Servicer. DBRS Morningstar considers CBF an acceptable collateralized loan obligation (CLO) manager.

The rating confirmations reflect the following primary considerations:
(1) The Indenture, dated as of August 7, 2018.
(2) The Class A Loan Agreement, dated August 7, 2018.
(3) The integrity of the transaction structure.
(4) DBRS Morningstar’s assessment of the portfolio quality.
(5) Adequate credit enhancement to withstand projected collateral loss rates under various cash flow stress scenarios.
(6) DBRS Morningstar’s assessment of the origination, servicing, and CLO management capabilities of CBF.

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.

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, 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 lead to 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 U.S. 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 in its “Global Macroeconomic Scenarios - June 2021 Update” commentary on June 18, 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.

DBRS Morningstar ran an additional higher default adjustment on the WA DBRS Morningstar Risk Score of the current collateral obligation pool with the maximum covenanted tenor, and this stressed modeling pool was run through the Monte Carlo simulation component of DBRS Morningstar’s CLO Asset Model to generate a stressed default rate. The results of this analysis indicate that the instruments can withstand an additional higher default probability 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 June 18, 2021, updated commentary “Global Macroeconomic Scenarios - June 2021 Update” at https://www.dbrsmorningstar.com/research/380281.

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.

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 for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:

The last rating action on this transaction took place on August 7, 2020, when DBRS Morningstar confirmed the ratings on both the Class A-1 Notes and the Class A 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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

Lead Analyst: Quan Yoon, CFA, Vice President, U.S. Structured Credit
Rating Committee Chair: Jerry van Koolbergen, Managing Director, U.S. Structured Credit
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 and CLO Asset Model Version 2.2.3 (February 8, 2021)
https://www.dbrsmorningstar.com/research/373423/rating-clos-and-cdos-of-large-corporate-credit

-- Cash Flow Assumptions for Corporate Credit Securitizations (February 8, 2021)
https://www.dbrsmorningstar.com/research/373422/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 22, 2020)
https://www.dbrsmorningstar.com/research/366977/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 10, 2021),
https://www.dbrsmorningstar.com/research/379958/interest-rate-stresses-for-us-structured-finance-transactions

-- Legal Criteria for U.S. Structured Finance (December 21, 2020)
https://www.dbrsmorningstar.com/research/371685/legal-criteria-for-us-structured-finance