DBRS Morningstar Confirms Credit Ratings, Removes Under Review with Developing Implications Status From the Class A-R Loans and Class A-T Loans of Cerberus PSERS Levered 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 Cerberus PSERS Levered 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 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, as amended by Amendment No. 11 to the Credit Agreement (the Credit Agreement), dated as of November 22, 2022, among Cerberus PSERS Levered LLC as the Borrower; Cerberus PSERS Levered Loan Opportunities Fund, L.P. as the Servicer; Natixis, New York Branch as the Administrative Agent; U.S. Bank National Association as the Custodian; U.S. Bank Trust Company National Association as the Collateral Agent; and each of the Lenders from time to time thereto.

The ratings on the Class A Loans address the timely payment of interest (excluding any Excess Interest Amounts and any additional interest payable pursuant to Section 2.5(c)(ii), as defined in the amended Credit Agreement) and the ultimate payment of principal on or before the Final Maturity Date (as defined in the amended Credit Agreement).

The Class A Loans are collateralized primarily by a portfolio of U.S. middle-market corporate loans. The servicer for Cerberus PSERS Levered LLC is Cerberus PSERS Levered Loan Opportunities Fund, L.P., an affiliate of Cerberus Capital Management II, L.P. DBRS Morningstar considers Cerberus PSERS Levered Loan Opportunities Fund, L.P.to be an acceptable collateralized loan obligation (CLO) servicer.

CREDIT RATING RATIONALE/DESCRIPTION
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 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 November 22, 2024. The Final Maturity Date is November 22, 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:

(1) Overcollateralization Ratio Test: Subject to Collateral Quality Matrix (CQM); Actual 168.76%; Threshold 137.06%
(2) Interest Coverage Test: Actual 206.79%; Threshold 125.00%
(3) Advance Rate Test: Subject to CQM; Actual 59.25%; Threshold 62.50%
(4) Maximum Weighted-Average (WA) Life Test: Actual 3.03 years; Threshold 5.00 years
(5) Maximum DBRS Morningstar Risk Score Test: Subject to CQM; Actual 26.74; Threshold 32.79
(6) Minimum WA DBRS Morningstar Recovery Rate Test: Subject to CQM; Actual 54.00%; Threshold 46.60%
(7) Minimum WA Spread Test: Subject to CQM; Actual 6.65%; Threshold 6.25%
(8) Minimum Diversity Score Test: Subject to CQM; Actual 34; Threshold 20

The transaction is performing according to the parameters of the Credit Agreement. The Borrower is in compliance with all coverage and collateral quality tests as well as concentration limitations for portfolio collateral obligations. There were around $26.00 million in defaulted obligations registered in the underlying portfolio as of the November 1, 2023, trustee report date. The current credit quality of the portfolio is reflected in the DBRS Morningstar Risk Score of 26.74.

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 Class A 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.

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.

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, 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.
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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)

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