DBRS Morningstar Confirms Credit Ratings, Removes Under Review with Developing Implications Status From the Class A-R Loans, Class A-T Loans, and Class T-2 Loans of Cerberus 2112 Levered LLC

DBRS, Inc. (DBRS Morningstar) confirmed its credit ratings on the Class A-R Loans, Class A-T-1 Loans, and Class A-T-2 Loans (together, the Class A Loans) issued by Cerberus 2112 Levered LLC (the Borrower) as follows:

-- Class A-R Loans at AA (sf)
-- Class A-T-1 Loans at AA (sf)
-- Class A-T-2 Loans at AA (sf)

At the same time, DBRS Morningstar removed the ratings from Under Review with Developing Implications where they had been placed on November 9, 2023.

The credit ratings on the Class A Loans were issued pursuant to the Credit Agreement dated October 8, 2020 (as amended by Amendment No. 1 dated December 23, 2020; Amendment No. 2 dated July 20, 2021; Amendment No. 3 dated February 4, 2022; Amendment No. 4 dated October 7, 2022; Amendment No. 5 dated March 3, 2023; and Amendment No. 6 dated as of September 13, 2023), among Cerberus 2112 Levered LLC as the Borrower; Cerberus 2112 Credit Holdings LLC as the Servicer; Natixis, New York Branch as the Administrative Agent; U.S. Bank Trust Company, National Association (rated AA (high) with a Negative trend by DBRS Morningstar) as the Collateral Agent; U.S. Bank National Association (rated AA (high) with a Negative trend by DBRS Morningstar) as the Custodian; and the Lenders party thereto.

The credit ratings on the Class A Loans address the timely payment of interest (excluding any Excess Interest Amounts and any additional interest payable, as defined in the Credit Agreement) and the ultimate payment of principal on or before the Final Maturity Date (as defined in the Credit Agreement).

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating actions are 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 ratings were placed Under Review with Developing Implications to allow DBRS Morningstar to review the credit ratings using the CLO Methodology. The Reinvestment Period end date is October 7, 2024. The Maturity Date of the Class A Loans is October 7, 2031.

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 1, 2023, the Borrower is in compliance with all performance metrics. The current transaction performance is within DBRS Morningstar’s expectations, which supports the confirmations on the Class A Loans.

The coverage and collateral quality test reported values and thresholds, respectively, that DBRS Morningstar reviewed are as follows:

-- Overcollateralization Ratio Test: Subject to Collateral Quality Matrix (CQM); Actual 175.96%; Threshold 137.06%
-- Interest Coverage Test: Actual 299.57%; Threshold 125.00%
-- Advance Rate Test: Subject to CQM; Actual 56.83%; Threshold; 65.00%
-- Maximum Weighted-Average (WA) Life Test: Actual 3.12 years; Threshold 5.25 years
-- Minimum Diversity Score: Subject CQM; Actual 38; Threshold 20
-- Maximum DBRS Morningstar Risk Score Test: Subject to CQM; Actual 26.06; Threshold 32.79
-- Minimum WA DBRS Morningstar Recovery Rate Test: Subject to CQM; Actual 54.00%; Threshold 47.99%
-- Minimum WA Spread Test: Subject to CQM; Actual 6.64%; Threshold 6.00%

Some particular strengths of the transaction are (1) collateral quality, which will consist primarily of senior-secured floating-rate middle market loans; (2) the adequate diversification of the current portfolio of collateral obligations (actual Diversity Score of 38, which exceeds the threshold Diversity Score of 20); and (3) the Collateral Manager’s expertise in CLOs and overall approach to selection of Collateral Obligations. One of the challenges identified was that the majority of the underlying loans have no public ratings and require either a credit estimate and/or a private rating from DBRS Morningstar.

The transaction is performing according to the contractual requirements of the Credit Agreement. As of November 1, 2023, the Borrower is in compliance with all coverage and collateral quality tests as well as concentration limitations for portfolio collateral obligations. There were around $12.33 million in defaulted obligations registered in the underlying portfolio as of the November 1, 2023 trustee report date.

For more information regarding DBRS Morningstar’s additional adjustment for select industries related to the 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, 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 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.

This is a solicited credit rating.

DBRS, Inc.
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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/legal-criteria-for-us-structured-finance)

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