Morningstar DBRS Confirms Credit Rating on the Notes Representing the Advances to Cerberus ND Levered LLC

DBRS, Inc. (Morningstar DBRS) confirmed its credit rating of AAA (sf) on the Notes representing the Advances (the Advances) to Cerberus ND Levered LLC, pursuant to the Loan, Security And Servicing Agreement dated as of January 31, 2020 (the Loan Agreement), as amended by the First Amendment dated as of July 6, 2020; the Second Amendment dated as of February 17, 2022; and the Third Amendment, dated as of June 25, 2024 by and among Cerberus ND Levered LLC as the Borrower; Cerberus ND Credit Holdings LLC as the Servicer; Capital One, National Association as the Administrative Agent, Hedge Counterparty, Swingline Lender and Arranger; U.S. Bank Trust Company, National Association as Collateral Custodian; U.S. Bank, National Association as Document Custodian; and each of the Lenders from time to time party thereto.

The credit rating on the Advances addresses the timely payment of Interest, other than Interest attributable to Excess Interest Amounts (as defined in the Loan Agreement) and the ultimate payment of Principal amount of all Advances outstanding on or before the Facility Maturity Date (as defined in the Loan Agreement).

The Advances are collateralized primarily by a portfolio of U.S. middle-market corporate loans. Cerberus ND Levered LLC is serviced by Cerberus ND Credit Holdings LLC, an affiliate of Cerberus Capital Management II, L.P. Morningstar DBRS considers Cerberus ND Credit Holdings LLC to be an acceptable collateralized loan obligation (CLO) servicer.

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating action is a result of the Morningstar DBRS' review of the Third Amendment, dated as of June 25, 2024 (the Amendment), which increases the Facility Amount, reprices the spread on the Advances, extends the Revolving Period, Maximum Weighted Average Life Test, and Facility Maturity Date, and updates the Collateral Quality Matrix, among other changes. The Facility Maturity Date is June 25, 2031. The Revolving Period ends on June 25, 2027.

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) Morningstar DBRS' assessment of the Servicer's origination, servicing, and CLO management capabilities.
(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 that permits variations of certain asset metrics via a selection of an applicable row from a collateral quality matrix (the CQM, as defined in Schedule VIII of the Loan Agreement). Depending on a given Diversity Score (DScore), the following metrics are selected accordingly from the applicable row of the CQM: Morningstar DBRS Risk Score, Weighted-Average (WA) Recovery Rate, and WA Spread Level. 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 in its base case analysis are presented below.

Coverage Tests:
(1) OC Ratio: 162.60%
(2) IC Ratio: 150.00%
(3) Minimum WAS Test: Subject to CQM; 4.25%
(4) Minimum Diversity Score Test: Subject to CQM; 15
(5) Maximum Morningstar DBRS Risk Score Test: Subject to CQM; 53.25%
(6) Minimum Morningstar DBRS WARR Test: 39.12%
(7) Minimum WA Coupon Test: 6.50%
(8) Maximum Advance Rate: 53.00%

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 (DScore currently at 46 compared with test level of 30); and (3) the Collateral Manager's expertise in CLOs and overall approach to selection of Collateral Obligations. Some challenges were identified as follows: (1) up to 35% of the portfolio pool may consist of long-dated assets and (2) the underlying collateral portfolio may be insufficient to redeem the Advances in an Event of Default.

The transaction is performing according to the contractual requirements of the Loan Agreement. As of May 31, 2024, the Borrower is in compliance with all Coverage and Collateral Quality Tests, as well as the Concentration Limitation tests. There were approximately $37.6 million in defaulted obligations registered in the underlying portfolio as of May 31, 2024.

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 23, 2024; https://dbrs.morningstar.com/research/428544).

Model-based analysis, which had incorporated the above-mentioned Concentration Limitation breach and the addition of rows to the collateral quality matrix, produced satisfactory results. Considering the analysis, as well as the transaction's legal aspects and structure, Morningstar DBRS confirmed the credit ratings 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 is used in assigning ratings to a facility.

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 (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.

Please, see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed credit ratings:

Each of the principal asset class methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision. The "Global Methodology for Rating CLOs and Corporate CDOs" methodology (February 23, 2024 https://dbrs.morningstar.com/research/428544) provides a general overview of the entire rating process and details on asset analysis.

The last credit rating action on this issuer took place on December 26, 2023.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

Lead Analyst: Oxana Rhybak, Vice President, Sector Lead, Structured Credit
Rating Committee Chair: Jerry van Koolbergen, Managing Director, Structured Credit
Initial Rating Date: January 31, 2020

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
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024),
https://dbrs.morningstar.com/research/428623
-- Legal Criteria for U.S. Structured Finance (April 15, 2024),
https://dbrs.morningstar.com/research/431205

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