DBRS Morningstar Finalizes Provisional Ratings on the Class A Notes, the Class B Notes, and the Class C Notes, Discontinues Provisional Rating on the Class X Notes of Cornhusker Funding 1B LLC

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the Class A Notes, the Class B Notes, and the Class C Notes (collectively, the Notes) issued by Cornhusker Funding 1B LLC (the Issuer), pursuant to the terms of the Indenture, dated as of April 22, 2022, between the Issuer and U.S. Bank Trust Company, National Association as follows:

-- Class A Notes at BBB (sf)
-- Class B Notes at BB (sf)
-- Class C Notes at B (sf)

The ratings on the Class A Notes, the Class B Notes, and the Class C Notes address the ultimate payment of interest and ultimate payment of principal on or before the Stated Maturity (as defined in the Indenture).

DBRS Morningstar also discontinued and withdrew the provisional rating on the Class X Notes. The discontinuation follows the Issuer’s rating withdrawal request, as the Class X Notes have not been funded to date and DBRS Morningstar expects to no longer finalize the provisional rating.

The Notes are collateralized primarily by a portfolio of U.S. middle-market corporate loans. The Issuer is managed by Mount Logan Management, LLC (Mount Logan), which is a subsidiary of Mount Logan Capital Inc. DBRS Morningstar considers Mount Logan to be an acceptable collateralized loan obligation (CLO) manager.

RATING RATIONALE
The rating action is a result of the rating finalization review of the transaction. DBRS Morningstar finalized the provisional ratings on the Notes as the current transaction meets the Effective Date conditions, satisfying each of the Coverage Tests, Concentration Limitations, and the Collateral Quality Tests as per Section 7.18 of the Indenture. The Stated Maturity is September 15, 2036. The Reinvestment Period ends on April 8, 2030.

In its analysis, DBRS Morningstar considered the following aspects of the transaction:

(1) The transaction’s capital structure and the form and sufficiency of available credit enhancement.

(2) Relevant credit enhancement in the form of subordination and excess spread.

(3) The ability of the Notes to withstand projected collateral loss rates under various cash flow stress scenarios.

(4) The credit quality of the underlying collateral and the ability of the transaction to reinvest Principal Proceeds into new Collateral Obligations, subject to the Eligibility Criteria, which include testing the Concentration Limitations, Collateral Quality Tests, and Coverage Tests.

(5) DBRS Morningstar’s assessment of the origination, servicing, and CLO management capabilities of Mount Logan as the Collateral Manager.

The transaction has a dynamic structural configuration that is used to determine which of the row/column combinations (each, a Matrix Case) are applicable for the purpose of determining compliance with the matrix, as set forth in the Indenture. Depending on a given Diversity Score, DBRS Morningstar selects the following metrics accordingly from the applicable row of the Collateral Quality Matrix: DBRS Morningstar Risk Score and Weighted Average Spread Level. DBRS Morningstar analyzed each structural configuration as a unique transaction, and all Matrix Cases passed the applicable DBRS Morningstar rating stress levels. The Coverage Tests and triggers as well as the Collateral Quality Tests that DBRS Morningstar modeled in its base-case analysis are presented below.

Coverage Tests:
Class A Overcollateralization (OC) Ratio: 124.50%
Class B OC Ratio: 116.80%
Class C OC Ratio: 113.40%
Class A Interest Coverage (IC) Ratio: 115.00%
Class B IC Ratio: 110.00%
Class C IC Ratio: 105.00%

Collateral Quality Tests:
Maximum Weighted Average Life: 8 years
Maximum Diversity Score: 25
Maximum DBRS Risk Score: 32.40%
Minimum Weighted Average Spread: 4.70%

Some particular strengths of the transaction are (1) collateral quality that consists of at least 95% senior-secured middle-market loans and (2) the expected adequate diversification of the portfolio of collateral obligations (matrix-driven Diversity Score). Some challenges are (1) up to 5% of the portfolio pool may consist of long-dated assets and (2) the underlying collateral portfolio may be insufficient to redeem the Notes in an Event of Default.

The transaction is performing according to the parameters of the Indenture. As of December 30, 2022, the Borrower is in compliance with all Coverage and Collateral Quality Tests, as well as the Concentration Limitation tests. There were no defaulted obligations registered in the underlying portfolio since the closing date of April 8, 2022.

DBRS Morningstar modeled the transaction using the DBRS Morningstar CLO Asset model and its proprietary cash flow engine, which incorporated assumptions regarding principal amortization, the amount of interest generated, default timings, and recovery rates, among other credit considerations referenced in the DBRS Morningstar rating methodology “Cash Flow Assumptions for Corporate Credit Securitizations.” Model-based analysis produced satisfactory results, which supported the finalization of the provisional ratings on the Notes.

To assess portfolio credit quality, DBRS Morningstar may provide a credit estimate or internal assessment for each nonfinancial corporate obligor in the portfolio that is not rated by DBRS Morningstar. Credit estimates are not ratings; rather, they represent an abbreviated analysis, including model-driven or statistical components of default probability for each obligor that is used in assigning a rating to a facility sufficient to assess portfolio credit quality.

The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: December 2022 Update,” published on December 21, 2022 (https://www.dbrsmorningstar.com/research/407678). These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.

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.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no environmental, social, and governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

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

The principal methodologies applicable to the rating are Rating CLOs and CDOs of Large Corporate Credit (https://www.dbrsmorningstar.com/research/409498; February 7, 2023) and Cash Flow Assumptions for Corporate Credit Securitizations (https://www.dbrsmorningstar.com/research/409499; February 7, 2023).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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.

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

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