Morningstar DBRS Finalizes Provisional Credit Ratings on the Notes of Cornhusker Funding 1C LLC

DBRS, Inc. (Morningstar DBRS) finalized its provisional credit ratings on the Class X Notes, the Class A Notes, the Class B Notes, and the Class C Notes (collectively, the Notes) issued by Cornhusker Funding 1C 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 X Notes at AAA (sf)
-- Class A Notes at BBB (sf)
-- Class B Notes at BB (sf)
-- Class C Notes at B (sf)

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

The credit rating on the Class X Notes addresses the timely payment of interest and ultimate payment of principal on or before the Stated Maturity (as defined in the Indenture). The credit 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, which is a subsidiary of Mount Logan Capital Inc. Morningstar DBRS considers Mount Logan Management, LLC an acceptable collateralized loan obligation (CLO) manager.

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating actions are a result of Morningstar DBRS’ 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 Morningstar DBRS to review the credit ratings using the CLO Methodology. The Reinvestment Period ends on April 8, 2030. The Stated Maturity is September 15, 2036.

The finalization of the ratings reflect that certain conditions after the Closing Date, such as compliance with Effective Date conditions (as defined in the Indenture) have been satisfied.

In its analysis, Morningstar DBRS considered the following aspects of the transaction:
(1) The Indenture, dated as of April 22, 2022.
(2) The integrity of the transaction’s structure.
(3) Morningstar DBRS’ assessment of the portfolio quality and covenants.
(4) Adequate credit enhancement to withstand Morningstar DBRS’ projected collateral loss rates under various cash flow-stress scenarios.
(5) Morningstar DBRS’ assessment of the origination, servicing, and CLO management capabilities of Mount Logan Management, LLC.

The transaction has a dynamic structural configuration that permits variations of certain asset metrics via a selection of an applicable row from a collateral quality matrix (the CQM). Depending on a given Diversity Score (DScore), the following metrics are selected accordingly from the applicable row of the CQM: Minimum Weighted-Average Spread (WAS) Test, and Maximum Morningstar DBRS Risk Score Test. Morningstar DBRS analyzed each structural configuration as a unique transaction and all configurations passed the applicable Morningstar DBRS rating stress levels. The Coverage Tests and triggers as well as the Collateral Quality Tests that Morningstar DBRS modelled during its analysis are presented below.

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

Coverage Tests:
Class A Overcollateralization (OC) Ratio: Subject to CQM; actual 136.65%; threshold 124.50%
Class B OC Ratio: Subject to CQM; actual 126.59%; threshold 116.80%
Class C OC Ratio: Subject to CQM; actual 122.09%; threshold 113.40%
Class A Interest Coverage (IC) Ratio: actual 176.86%; threshold 115.00%
Class B IC Ratio: actual 156.09%; threshold 110.00%
Class C IC Ratio: actual 145.86%; threshold 105.00%

Collateral Quality Tests:
Minimum DScore: Subject to CQM; actual 22.35; threshold 17.00
Maximum DBRS Morningstar Risk Score: Subject to CQM; actual 28.00%; threshold 33.60%
Minimum WAS: Subject to CQM; actual 5.58%; threshold 5.10%

Some particular strengths of the transaction are (1) the 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 5, 2023, the Borrower is in compliance with all Coverage and Collateral Quality Tests. There were no defaulted obligations registered in the underlying portfolio as of the December 5, 2023, trustee report date.

Morningstar DBRS analyzed the transaction using the Morningstar DBRS CLO Insight Model and its proprietary cash flow engine, which incorporated assumptions regarding principal amortization, amount of interest generated, principal prepayments, default timings, and recovery rates, among other credit considerations referenced in the Morningstar DBRS “Global Methodology for Rating CLOs and Corporate CDOs” (October 22, 2023; https://dbrs.morningstar.com/research/422269).

The transaction assumptions consider Morningstar DBRS’ 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://dbrs.morningstar.com/research/425506). These baseline macroeconomic scenarios replace Morningstar DBRS’s moderate and adverse COVID-19 pandemic scenarios, which were first published in April 2020.

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

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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024), https://dbrs.morningstar.com/research/427030.

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

The principal methodology applicable to the credit ratings is Global Methodology for Rating CLOs and Corporate CDOs and the CLO Insight Model v1.0.1.0 (October 22, 2023) https://dbrs.morningstar.com/research/422269/.

Other methodologies referenced in this transaction are listed at the end of this press release.

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.

Morningstar DBRS 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://dbrs.morningstar.com/about/methodologies.

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

Operational Risk Assessment for CLOs and CDOs (September 14, 2023),
https://dbrs.morningstar.com/research/420608

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

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