DBRS Morningstar Confirms Credit Ratings, Removes Under Review with Developing Implications Status, on the Class A-R Loans and Class A-T Loans of ABPCIC Funding IV, LLC

DBRS, Inc. (DBRS Morningstar) confirmed its credit ratings on the Class A-R Loans and the Class A-T Loans (together, the Class A Loans) issued by ABPCIC Funding IV, LLC as follows:

-- Class A-R Loans at AA (sf)
-- Class A-T Loans at AA (sf)

At the same time, DBRS Morningstar removed the Under Review with Developing Implications designations on the Class A Loans, which had been placed on November 9, 2023.

The credit ratings on the Class A Loans were issued pursuant to the Credit Agreement dated as of April 21, 2023, among ABPCIC Funding IV, LLC, as Borrower; Natixis, New York Branch, as Administrative Agent; U.S. Bank Trust Company, National Association as Collateral Agent and Collateral Administrator; and the Lenders referred to therein.

CREDIT RATING RATIONALE
The credit rating action is a result of DBRS Morningstar’s review of the transaction performance by applying the “Global Methodology for Rating CLOs and Corporate CDOs” (the CLO Methodology), released on October 22, 2023. On November 9, 2023, the credit rating was placed Under Review with Developing Implications to allow for DBRS Morningstar to review the credit ratings using the CLO Methodology. The Reinvestment Period end date is October 21, 2024. The Final Maturity Date is April 21, 2033.

DBRS Morningstar monitors transaction performance metrics based on the periodicity of the transaction’s reporting. The performance metrics include Collateral Quality Tests, Coverage Tests, Concentration Limitations, and Performing Collateral Par. As of November 10, 2023, the Borrower is in compliance with all performance metrics. The current transaction performance is within DBRS Morningstar’s expectation, which supports the confirmation on the Class A Loans.

Some of the required performance metrics that DBRS Morningstar reviewed are listed below:

(1) Overcollateralization Ratio: Subject to Collateral Quality Matrix; 141.54%
(2) Interest Coverage Ratio: 150.00%
(3) Maximum Weighted-Average (WA) Life Test: 6.0 years
(4) Maximum Diversity Score Test: Subject to Collateral Quality Matrix; 21
(5) Maximum DBRS Morningstar Risk Score Test: Subject to Collateral Quality Matrix; 34.00%
(6) Minimum WA DBRS Morningstar Recovery Rate Test: 49.40%
(7) Minimum WA Spread Test: 5.75%
(8) Minimum WA Fixed-Rate Coupon Test: 7.50%

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 Collateral Quality Matrix), and the majority may not have public ratings once purchased, and (2) the underlying collateral portfolio may be insufficient to redeem the Class A Loans in an Event of Default.

For more information regarding DBRS Morningstar’s additional adjustment for select industries related to the Coronavirus Disease (COVID-19) pandemic, please see its May 18, 2020, commentary, “CLO Risk Exposure to the Coronavirus Disease (COVID-19)” at https://www.dbrsmorningstar.com/research/361112.

The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: September 2023 Update,” published on September 28, 2023 (https://www.dbrsmorningstar.com/research/421227). These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse pandemic scenarios, which were first published in April 2020.

ENVIRONMENTAL, SOCIAL, AND 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 https://www.dbrsmorningstar.com/research/416784 (July 4, 2023).

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

The principal methodology applicable to the credit ratings is the Global Methodology for Rating CLOs and Corporate CDOs (October 22, 2023; https://www.dbrsmorningstar.com/research/422269).

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 credit rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the credit rating process for this credit 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 credit 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 credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Operational Risk Assessment for Collateralized Loan Obligations (CLOs) and Corporate Collateralized Debt Obligations (CDOs) (September 14, 2023), https://www.dbrsmorningstar.com/research/420608

-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023),
https://www.dbrsmorningstar.com/research/415687

-- Legal Criteria for U.S. Structured Finance (December 7, 2023), https://www.dbrsmorningstar.com/research/425081

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