Morningstar DBRS Assigns Provisional Credit Ratings to the Advances Issued by Cerberus 9990 Levered LLC

DBRS, Inc. (Morningstar DBRS) assigned the following public provisional credit ratings of AA (sf) on the Swingline Advances, the Revolving Advances, and the Term Advances (together, the Advances) issued by Cerberus 9990 Levered LLC, pursuant to the Credit Agreement, dated as of April 5, 2024 (the CA), among Cerberus 9990 Levered LLC, as the Borrower, Cerberus 9990 Levered Holdings LLC, as the Servicer, The Bank of Nova Scotia, as the Administrative Agent, U.S. Bank Trust Company, N.A., as the Collateral Agent and Custodian, and the Lenders party thereto:

-- Swingline Advances at AA (sf)
-- Revolving Advances at AA (sf)
-- Term Advances at AA (sf)

The provisional credit ratings on the Advances address the timely payments of interest (excluding any Excess Interest Amounts, Costs and Expenses, Breakage Costs, and/or Indemnified Amounts as defined in the CA referred to above) and the ultimate payments of principal on or before the Final Maturity Date (as defined in the CA referred to above).

A provisional credit rating is not a final credit rating with respect to the above-mentioned Advances and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned Advances is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

RATING RATIONALE

Cerberus 9990 Levered LLC is a cash flow collateralized loan obligation (CLO) transaction that is collateralized primarily by a portfolio of U.S. senior secured middle-market (MM) corporate loans. The Reinvestment Period is scheduled to end on July 5, 2026. The Final Maturity Date is April 5, 2033.

In its analysis, Morningstar DBRS 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 Advances 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) Assessment of the CLO management capabilities of Cerberus 9990 Levered Holdings LLC, an affiliate of Cerberus Capital Management II, L.P., as the Servicer.
(6) The legal structure as well as legal opinions addressing certain matters of the Borrower and the consistency with the “Morningstar DBRS Legal Criteria for U.S. Structured Finance” methodology (the Legal Criteria).

The transaction has a dynamic structural configuration which 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: Morningstar DBRS WA Risk Score, Senior Advance Rate, Weighted Average Spread (WAS) and Weighted Average Recovery Rate (WARR). Morningstar DBRS analyzed each structural configuration (as defined in Schedule 7 of the CA) as a unique transaction and all configurations (rows) 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 in the tables below.

(1) Overcollateralization Test: Subject to CQM; 138.46%–225.00%
(2) Interest Coverage Test: 130.0%
(3) Minimum Weighted Average Spread Test: Subject to CQM; 5.00%–6.50%
(4) Weighted-Average Life Test: 6.50 years
(5) Minimum Diversity Score Test: Subject to CQM; 10–30
(6) Minimum Weighted Average DBRS Recovery Rate Test: Subject to CQM; 44.41%–61.00%
(7) Minimum Weighted Average Coupon Test: 8.00%
(8) Maximum DBRS Risk Score Test: Subject to CQM; 27.76%–71.86%

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 Servicer’s expertise in CLOs and overall approach to selection of Collateral Obligations.

Some challenges were identified: (1) the expected weighted-average 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 Advances in an Event of Default.

Morningstar DBRS modeled 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, default timings, and recovery rates, among other credit considerations referenced in Morningstar DBRS’ “Global Methodology for Rating CLOs and Corporate CDOs.” Model-based analysis produced satisfactory results, which supported the credit rating on the Advances.

To assess portfolio credit quality, Morningstar DBRS provides a credit estimate or internal assessment for each nonfinancial corporate obligor in the portfolio not rated by Morningstar DBRS. Credit estimates are not ratings; rather, they represent a model-driven default probability for each obligor that Morningstar DBRS uses when rating the Advances.

Morningstar DBRS’ credit rating on Advances addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are Interest at the Applicable Margin and Benchmark, the Commitment Fees and principal on the Advances, each as defined in the CA.

Morningstar DBRS’ credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, the credit rating on the Advances does not address any Excess Interest Amounts, Costs and Expenses, Breakage Costs, and/or Indemnified Amounts defined in the CA.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk
that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

The transaction assumptions consider Morningstar DBRS’ baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: March 2024 Update,” published on March 27, 2024 (https://dbrs.morningstar.com/research/430189). These baseline macroeconomic scenarios replace Morningstar DBRS’ moderate and adverse pandemic scenarios, which were first published in April 2020.

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

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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 at https://dbrs.morningstar.com/research/427030 (January 23, 2024).

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

The principal methodology applicable to the credit rating is the Global Methodology for Rating CLOs and Corporate CDOs and the Morningstar DBRS CLO Insight Model (v.1.0.1.0) (February 23, 2024), https://dbrs.morningstar.com/research/428544.

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.

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

-- Operational Risk Assessment for Collateralized Loan Obligations (CLOs) and Corporate Collateralized Debt Obligations (CDOs) (September 14, 2023)
https://dbrs.morningstar.com/research/420608

-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024)
https://dbrs.morningstar.com/research/428623

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.