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

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the Loans issued by ABPCI Pacific Funding LP as follows:

-- Class A-R-1 Loans at AA (sf)
-- Class A-R-2 Loans at AA (sf)
-- Class A-R-3 Loans at AA (sf)
-- Class A-T-1 Loans at AA (sf)
-- Class A-T-2 Loans at AA (sf)
-- Class A-T-3 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, Amendment No. 2 to the Credit Agreement, dated April 9, 2024, and Amendment No. 3 to the Credit Agreement dated June 26, 2024 among ABPCI Pacific Funding LP, as Borrower; 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) and the ultimate payment of principal on or before the Stated Maturity (as defined in the Credit Agreement).

CREDIT RATING RATIONALE/DESCRIPTION
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 non-payment 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 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.

The credit rating actions are a result of Morningstar DBRS' review of Amendment No. 3 to the Credit Agreement, dated June 26, 2024 (the Amendment), which added additional rows to the transaction's collateral quality matrix. The Reinvestment Period ends on 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 Alliance Bernstein 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. 3 to the Credit Agreement, dated June 26, 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; 4.25%
(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 May 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 (27.54% vs 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 that 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 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 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.

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 (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)

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.