Press Release

Morningstar DBRS Assigns and Confirms Credit Ratings on the Loans of ABPCI Pacific Funding LP

Structured Credit
April 10, 2024

DBRS, Inc. (Morningstar DBRS) assigned credit ratings to the Class A-R-3 Loans and the Class A-T-3 Loans issued by ABPCI Pacific Funding LP as follows:

-- Class A-R-3 Loans at AA (sf)
-- Class A-T-3 Loans at AA (sf)

At the same time, Morningstar DBRS confirmed its credit ratings on the Class A-R-1 Loans, the Class A-T-1 Loans, the Class A-R-2 Loans, the Class A-T-2 Loans, and the Class B Loans (together with the Class A-R-3 Loans and the Class A-T-3 Loans, the Loans) as follows:

-- Class A-R-1 Loans at AA (sf)
-- Class A-T-1 Loans at AA (sf)
-- Class A-R-2 Loans at AA (sf)
-- Class A-T-2 Loans at AA (sf)
-- Class B Loans at AA (low) (sf)

The Loans were issued pursuant to the Credit Agreement dated November 1, 2022, as amended by Amendment No. 1 to the Credit Agreement, dated May 26, 2023, and Amendment No. 2 to the Credit Agreement, dated April 9, 2024, among ABPCI Pacific Funding LP, as Borrower; ABPCI Pacific Funding RR LP acting through its general partner, ABPCI Pacific Funding RR GP Ltd., as Retention Provider; Natixis, New York Branch, as Administrative Agent; U.S. Bank Trust Company, National Association, as Collateral Agent, Collateral Administrator, and Custodian; and the Lenders and the Equity Investors party thereto.

The credit ratings on the Loans address the timely payment of interest (excluding Capped Amounts and the additional 2% interest payable at the Post-Default Rate) (as defined in the Credit Agreement referred to above) and the ultimate payment of principal on or before the Stated Maturity (as defined in the Credit Agreement referred to above).

Morningstar DBRS’ credit ratings on the Loans address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are interest (excluding Capped Amounts and the additional 2% interest payable at the Post-Default Rate) (as defined in the Credit Agreement referred to above) and the ultimate payment of principal.

Morningstar DBRS’ credit ratings do 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 ratings on the Loans do not address the any Capped Amounts or the additional 2% interest payable at the Post-Default Rate.

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.

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating actions are a result of Morningstar DBRS’ review of Amendment No. 2 to the Credit Agreement, dated April 9, 2024 (the Amendment), which issues the Class A-R-3 and Class A-T-3 Loans, changes the pricing of the existing Loans, and extends the Reinvestment Period and the Stated Maturity of the transaction, among other changes. The Reinvestment Period ends November 1, 2025. The Stated Maturity is November 3, 2032.

The Borrower is a bankruptcy-remote special-purpose vehicle established by AB Private Credit Investors LLC (ABPCI) as the Collateral Manager. The Loans are collateralized primarily by a portfolio of U.S. middle-market corporate loans and other corporate obligations. ABPCI Pacific Funding LP is managed by ABPCI, an affiliate of AllianceBernstein L.P. Morningstar DBRS considers ABPCI an acceptable collateralized loan obligation (CLO) manager.

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

(1) The Credit Agreement, dated November 1, 2022, as amended by Amendment No. 2 to the Credit Agreement, dated April 9, 2024.
(2) The integrity of the transaction structure.
(3) Morningstar DBRS’ assessment of the portfolio quality.
(4) Adequate credit enhancement to withstand projected collateral loss rates under various cash flow stress scenarios.
(5) Morningstar DBRS’ assessment of the origination, servicing, and CLO management capabilities of ABPCI.
(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 transaction has a dynamic structural configuration that permits variations of certain asset metrics via the selection of an applicable row from a collateral quality matrix (the CQM). Depending on a given Diversity Score, the following metrics will be selected accordingly from the applicable row of the CQM: Diversity Score, Morningstar DBRS Risk Score, Weighted-Average Spread (WAS), and Weighted-Average Recovery Rate (WARR). Morningstar DBRS analyzed each structural configuration 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 modeled during its analysis are presented below.

(1) Overcollateralization Ratio Test: Subject to CQM; 153.33%
(2) Interest Coverage Ratio Test: 150.00%
(3) Minimum WAS Test: Subject to CQM; 4.75%
(4) Minimum Diversity Score Test: Subject to CQM; 16
(5) Maximum Morningstar DBRS Risk Score Test: Subject to CQM; 38.00%
(6) Minimum Morningstar DBRS WARR Test: 48.70%
(7) Minimum WA Coupon Test: 8.00%
(8) Maximum Class A Advance Rate: Subject to CQM; 55.0%
(9) Maximum Class A and B Advance Rate: Subject to CQM; 60.0%

As of February 13, 2024, the transaction is in compliance with all its Coverage Tests and Collateral Quality Tests. The transaction is failing its Concentration Limitation for Recurring Revenue Loan Assets (31.31% versus the maximum of 25%). Morningstar DBRS considered this failure in its analysis of the transaction.

Some particular strengths of the transaction are (1) the collateral quality, which consists mostly of senior-secured middle-market loans; (2) the 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 weighted-average (WA) credit quality of the underlying obligors may fall below investment grade (per the Collateral Quality Matrix) and the majority 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.

Morningstar DBRS analyzed the transaction using the Morningstar DBRS CLO Insight Model and its proprietary cash flow engine, which incorporated assumptions regarding principal amortization, principal prepayment, amount of interest generated, principal prepayments, default timings, and recovery rates, among other credit considerations referenced in Morningstar DBRS’ “Global Methodology for Rating CLOs and Corporate CDOs” (February 24, 2024; https://dbrs.morningstar.com/research/428544).

Model-based analysis, which had incorporated the above-mentioned Concentration Limitation breaches, produced satisfactory results. Considering the transaction performance, as well as its legal aspects and structure, Morningstar DBRS assigned and confirmed the above-mentioned credit ratings on the Loans.

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 is used in assigning ratings to a facility.

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 Coronavirus Disease (COVID-19)” at https://dbrs.morningstar.com/research/361112

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a relevant or significant 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 (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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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://dbrs.morningstar.com/about/methodologies.

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

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.

Ratings

ABPCI Pacific Funding LP
  • Date Issued:Apr 10, 2024
  • Rating Action:Confirmed
  • Ratings:AA (sf)
  • Trend:--
  • Rating Recovery:
  • Issued:US
  • Date Issued:Apr 10, 2024
  • Rating Action:Confirmed
  • Ratings:AA (sf)
  • Trend:--
  • Rating Recovery:
  • Issued:US
  • Date Issued:Apr 10, 2024
  • Rating Action:New Rating
  • Ratings:AA (sf)
  • Trend:--
  • Rating Recovery:
  • Issued:US
  • Date Issued:Apr 10, 2024
  • Rating Action:Confirmed
  • Ratings:AA (sf)
  • Trend:--
  • Rating Recovery:
  • Issued:US
  • Date Issued:Apr 10, 2024
  • Rating Action:Confirmed
  • Ratings:AA (sf)
  • Trend:--
  • Rating Recovery:
  • Issued:US
  • Date Issued:Apr 10, 2024
  • Rating Action:New Rating
  • Ratings:AA (sf)
  • Trend:--
  • Rating Recovery:
  • Issued:US
  • Date Issued:Apr 10, 2024
  • Rating Action:Confirmed
  • Ratings:AA (low) (sf)
  • Trend:--
  • Rating Recovery:
  • Issued:US
  • US = Lead Analyst based in USA
  • CA = Lead Analyst based in Canada
  • EU = Lead Analyst based in EU
  • UK = Lead Analyst based in UK
  • E = EU endorsed
  • U = UK endorsed
  • Unsolicited Participating With Access
  • Unsolicited Participating Without Access
  • Unsolicited Non-participating

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