DBRS Morningstar Assigns Ratings to the Class A-R-2 Loans and Class A-T-2 Loans and Confirms Ratings on the Class A-R-1 Loans, the Class A-T-1 Loans, and the Class B Loans of ABPCI Pacific Funding LP

DBRS, Inc. (DBRS Morningstar) assigned ratings of AA (sf) to each of the Class A-R-2 Loans and the Class A-T-2 Loans and confirmed its ratings of AA (sf) on each of the Class A-R-1 Loans (formerly known as (f.k.a.) the Class A-R Loans) and the Class A-T-1 Loans (f.k.a. the Class A-T Loans) and AA (low) (sf) on the Class B Loans (together, the Loans) issued by ABPCI Pacific Funding LP, pursuant to the Credit Agreement dated as of November 1, 2022, as amended by Amendment No. 1 to the Credit Agreement dated as of May 26, 2023, among ABPCI Pacific Funding LP, as Borrower; ABPCI Pacific Funding RR LP acting through its general partner, ABPCI Pacific Funding RR GP Ltd., as Retention Provider; Natixis, New York Branch, as Administrative Agent; U.S. Bank Trust Company, National Association, as Collateral Agent, Collateral Administrator, and Custodian; and the Lenders and the Equity Investors party thereto, as well as the amendment to the Collateral Management Agreement, dated as of May 26, 2023, between the Borrower and Collateral Manager.

The ratings on the Loans address the timely payment of interest (excluding Capped Amounts and the additional two percent of interest payable at the Post-Default Rate) (as defined in the Credit Agreement referred to above) and the ultimate payment of principal on or before the Stated Maturity (as defined in the Credit Agreement referred to above).

RATING RATIONALE
The rating actions with respect to the above-mentioned Loans are being provided in relation to the execution of the Amendment No. 1 to the Credit Agreement, dated as of May 26, 2023, among ABPCI Pacific Funding LP, as Borrower; ABPCI Pacific Funding RR LP acting through its general partner, ABPCI Pacific Funding RR GP Ltd., as Retention Provider; Natixis, New York Branch, as Administrative Agent; U.S. Bank Trust Company, National Association, as Collateral Agent, Collateral Administrator, and Custodian; and the Lenders party thereto, as well as the amendment to the Collateral Management Agreement, dated as of May 26, 2023, between the Borrower and Collateral Manager.

The Borrower is a bankruptcy-remote special-purpose vehicle established by AB Private Credit Investors LLC (ABPCI) as the Collateral Manager. The Loans are collateralized primarily by a portfolio of U.S. middle-market corporate loans and other corporate obligations. ABPCI Pacific Funding LP is managed by ABPCI, an affiliate of AllianceBernstein L.P. DBRS Morningstar considers ABPCI an acceptable collateralized loan obligation (CLO) manager. The Reinvestment Period ends November 1, 2024. The Stated Maturity is November 3, 2031.

The ratings reflect the following primary considerations:
(1) The Credit Agreement, dated November 1, 2022, as amended by Amendment No. 1 to the Credit Agreement, dated as of May 26s, 2023.
(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 CLO management capabilities of ABPCI.
(6) The legal structure as well as legal opinions addressing certain matters of the Borrower and the consistency with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance” methodology.

The transaction has a dynamic structural configuration that permits variations of certain asset metrics via the selection of an applicable row from a collateral quality matrix (the CQM). Depending on a given Diversity Score, the following metrics will be selected accordingly from the applicable row of the CQM: Diversity Score, DBRS Morningstar Risk Score, Weighted-Average Spread (WAS), and Weighted-Average Recovery Rate (WARR). DBRS Morningstar analyzed each structural configuration as a unique transaction and all configurations (rows) passed the applicable DBRS Morningstar rating stress levels. The Coverage Tests and triggers as well as the Collateral Quality Tests that DBRS Morningstar modeled during its analysis are presented below.

(1) Overcollateralization Ratio Test: Subject to CQM; 153.33%
(2) Interest Coverage Ratio Test: 150.00%
(3) Minimum WAS Test: Subject to CQM; 4.75%
(4) Maximum Weighted-Average (WA) Life Test: 6.50 years from the Closing Date
(5) Minimum Diversity Score Test: Subject to CQM; 8
(6) Maximum DBRS Morningstar Risk Score Test: Subject to CQM; 38.00%
(7) Minimum DBRS Morningstar WARR Test: 47.70%
(8) Minimum WA Coupon Test: 8.00%
(9) Maximum Class A Advance Rate: Subject to CQM; 55.0%
(10) Maximum Class A and B Advance Rate: Subject to CQM; 60.0%

Some particular strengths of the transaction are (1) the collateral quality, which will consist mostly of senior-secured
middle market loans; (2) the expected adequate diversification of the portfolio of collateral obligations (Diversity Score,
matrix driven); and (3) the Collateral Manager’s expertise in CLOs and overall approach to selection of Collateral Obligations.

Some challenges were identified: (1) the expected WA credit quality of the underlying obligors may fall below investment grade (per the CQM) and the majority may not have public ratings once purchased and (2) the underlying collateral portfolio may be insufficient to redeem the Loans in an Event of Default.

DBRS Morningstar modeled the transaction using the DBRS Morningstar CLO Asset Model and its proprietary cash flow engine, which incorporated assumptions regarding principal amortization, 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 that supported the ratings on the Loans.

Considering the transaction structure, its legal aspects, and the results produced by the models, DBRS Morningstar assigned and confirmed the ratings above on the Loans issued by ABPCI Pacific Funding LP.

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.

The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: April 2023 Update” (https://www.dbrsmorningstar.com/research/413218). 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 pandemic, please see its May 18, 2020, commentary, “CLO Risk Exposure to the Coronavirus Disease (COVID-19)” (https://www.dbrsmorningstar.com/research/361112).

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/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 www.dbrsmorningstar.com/research/396929 (May 17, 2022).

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

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

Other methodologies referenced in this transaction are listed at the end of this press release.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Rating CLOs and CDOs of Large Corporate Credit and DBRS Morningstar CLO Asset Model Version 2.2.3.1 (February 7, 2023)
www.dbrsmorningstar.com/research/409498

-- Cash Flow Assumptions for Corporate Credit Securitizations (February 7, 2023)
www.dbrsmorningstar.com/research/409499

-- Legal Criteria for U.S. Structured Finance (December 7, 2022)
https://www.dbrsmorningstar.com/research/407008

-- Operational Risk Assessment for Collateralized Loan Obligation (CLO) and Collateralized Debt Obligation (CDO) Managers of Large Corporate Credits (September 23, 2022)
https://www.dbrsmorningstar.com/research/403042

-- Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022)
https://www.dbrsmorningstar.com/research/402153

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