DBRS Morningstar Confirms Credit Ratings on the Class A Notes, the Class B Notes, and the Class C Notes of Cornhusker Funding 1A LLC; Removes Under Review with Developing Implications Status

DBRS, Inc. (DBRS Morningstar) confirmed its credit ratings on the Class A Notes, the Class B Notes, and the Class C Notes (collectively, the Notes) issued by Cornhusker Funding 1A LLC (the Issuer), pursuant to the terms of the Indenture, dated as of April 22, 2022, between the Issuer and U.S. Bank Trust Company, National Association as follows:

-- Class A Notes at BBB (sf)
-- Class B Notes at BB (sf)
-- Class C Notes at B (sf)

At the same time, DBRS Morningstar removed the Under Review with Developing Implications status of the credit ratings, where they were placed on November 9, 2023.

The ratings on the Class A Notes, the Class B Notes, and the Class C Notes address the ultimate payment of interest and ultimate payment of principal on or before the Stated Maturity (as defined in the Indenture).

The Notes are collateralized primarily by a portfolio of U.S. middle-market corporate loans. The Issuer is managed by Mount Logan Management, LLC (Mount Logan), which is a subsidiary of Mount Logan Capital Inc. DBRS Morningstar considers Mount Logan to be an acceptable collateralized loan obligation (CLO) manager.

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating actions are a result of DBRS Morningstar’s review of the transaction performance and application of 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 ends on April 8, 2030. The Stated Maturity is September 15, 2036.

In its analysis, DBRS Morningstar considered the following aspects of the transaction:

(1) The transaction’s capital structure and the form and sufficiency of available credit enhancement.
(2) Relevant credit enhancement in the form of subordination and excess spread.
(3) The ability of the Notes to withstand projected collateral loss rates under various cash flow stress scenarios.
(4) The credit quality of the underlying collateral and the ability of the transaction to reinvest Principal Proceeds into new Collateral Obligations, subject to the Eligibility Criteria, which include testing the Concentration Limitations, Collateral Quality Tests, and Coverage Tests.
(5) DBRS Morningstar’s assessment of the origination, servicing, and CLO management capabilities of Mount Logan as the Collateral Manager.

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

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

Coverage Tests:
Class A Overcollateralization (OC) Ratio: Subject to Collateral Quality Matrix (CQM); actual 136.82%; threshold 124.50%
Class B OC Ratio: Subject to CQM; actual 126.75%; threshold 116.80%
Class C OC Ratio: Subject to CQM; actual 122.25%; threshold 113.40%
Class A Interest Coverage (IC) Ratio: actual 188.42%; threshold 115.00%
Class B IC Ratio: actual 166.29; threshold 110.00%
Class C IC Ratio: actual 155.40%; threshold 105.00%

Collateral Quality Tests:
Maximum Diversity Score: Subject to CQM; actual 24.50%; threshold 21.00%
Maximum DBRS Morningstar Risk Score: Subject to CQM; actual 29.79%; threshold 34.20%
Minimum Weighted Average Spread: Subject to CQM; actual 5.42%; threshold 5.10%

Some particular strengths of the transaction are (1) collateral quality that consists of at least 95% senior-secured middle-market loans and (2) the adequate diversification of the portfolio of collateral obligations (matrix-driven Diversity Score). Some challenges are (1) up to 5% of the portfolio pool may consist of long-dated assets, and (2) the underlying collateral portfolio may be insufficient to redeem the Notes in an Event of Default.

As of December 1, 2023, the Borrower is in compliance with all Coverage and Collateral Quality Tests. The transaction is failing the Concentration Limitation for Senior Secured Loans (94.7% versus the minimum threshold of 95.0%). The failure is due to the calculation using total capitalization in the denominator, whereas the actual pool is made up of 100% Senior Secured Loans. There were no defaulted obligations registered in the underlying portfolio since the closing date of December 1, 2023.

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: December 2023 Update, published on December 19, 2023 (https://www.dbrsmorningstar.com/research/425506). These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse COVID-19 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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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].