DBRS Morningstar Confirms Credit Ratings, Removes Under Review with Developing Implications Status From the Revolving Advances and Term Loan Issued by Cerberus RR Levered LLC

DBRS, Inc. (DBRS Morningstar) confirmed its credit ratings on the Revolving Advances and Term Loan (together, the Loans) issued by Cerberus RR Levered LLC (the Borrower) as follows:

-- Revolving Advances at AAA (sf)
-- Term Loan at AAA (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 Loans were issued pursuant to the Loan, Security and Servicing Agreement, dated as of May 5, 2022, as amended by the First Amendment to the Loan, Security and Servicing Agreement, dated as of December 1, 2022, and by the Second Amendment to the Loan, Security and Servicing Agreement, dated as of September 14, 2023 (the Loan Agreement), by and among Cerberus RR Levered LLC as the Borrower; Cerberus RR Levered Holdings LP as the Servicer and as the Transferor; Capital One, National Association (rated “A” with a Stable trend by DBRS Morningstar) as the Administrative Agent, Hedge Counterparty, Swingline Lender, and Arranger; U.S. Bank Trust Company, National Association (rated AA (high) with a Negative trend by DBRS Morningstar) as Collateral Custodian; U.S. Bank National Association (rated AA (high) with a Negative trend by DBRS Morningstar) as Document Custodian; and each of the Lenders from time to time party thereto.

The credit ratings on the Loans address the timely payment of interest, other than interest attributable to Excess Interest Amounts (as defined in the Loan Agreement), and the ultimate payment of the aggregate principal amount of all Advances outstanding on or before the Facility Maturity Date (as defined in the Loan 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 Scheduled Revolving Period End Date is March 14, 2026. The Facility Maturity Date is March 14, 2030

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 October 31, 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 Loans.

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

(1) Overcollateralization Ratio Test: Actual 278.26%; Threshold 162.60%
(2) Interest Coverage Test: Actual 313.85%; Threshold 150.00%
(3) Portfolio Advance Rate: Subject to Collateral Quality Matrix (CQM); Actual 35.94%; Threshold 53.00%
(4) Maximum Weighted-Average (WA) Life Test: Actual 3.37; Threshold 5.50
(5) Minimum Diversity Test: Subject to CQM; Actual 22; Threshold 15
(6) Maximum DBRS Morningstar Risk Score Test: Subject to CQM; Actual 24.12; Threshold 36.36
(7) Minimum WA DBRS Morningstar Recovery Rate Test: Subject to CQM; Actual 49.90; Threshold 46.60
(8) Minimum WA Spread Test: Subject to CQM: Actual 6.34%; Threshold 5.50%

As of October 31, 2023, the transaction is performing according to the parameters of the Loan Agreement. The Borrower is in compliance with all collateral quality tests and some coverage tests. The transaction is failing certain concentration limitations, but such failures are treated as Excess Concentration Amounts, as defined in the Loan Agreement. The current credit quality of the portfolio is reflected in its DBRS Morningstar Risk Score of 24.12. There were around $4.00 million in defaulted obligations registered in the underlying portfolio as of the October 31, 2023, trustee report date.

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 (current Diversity Score of 22 versus the threshold Diversity Score of 15); and (3) the Servicer’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 of obligors 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.

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 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.
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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].