Morningstar DBRS Confirms AA (sf) Ratings on the Class A Loans of Cerberus Redwood Levered B LLC

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings of AA (sf) on the Class A-R-1 Loans, Class A-R-2 Loans, Class A-T-1 Loans, and Class A-T-2 Loans (together, the Class A Loans) issued by Cerberus Redwood Levered B LLC, pursuant to Amendment No. 8 to Credit Agreement, dated as of April 21, 2023, among Cerberus Redwood Levered B LLC (the Borrower), Cerberus Redwood Levered Loan Opportunities Fund B, L.P. (the Servicer and Retention Provider), Natixis, New York Branch (the Administrative Agent), U.S. Bank Trust Company, National Association (the Collateral Agent), U.S. Bank National Association (the Custodian) and the Lenders thereto.

The credit ratings on the Class A Loans address the timely payments of interest (excluding any Excess Interest Amounts and any additional interest payable pursuant to Section 2.5(c)(ii), as defined in the amended Credit Agreement) and the ultimate payments of principal on or before the Final Maturity Date (as defined in the amended Credit Agreement).

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating action is a result of Morningstar DBRS’ annual review of the transaction’s performance. The Reinvestment Period ends on April 21, 2025. The Final Maturity Date is April 21, 2032.

Morningstar DBRS monitors transaction performance metrics based on the periodicity of the transaction’s reporting. The performance metrics include Collateral Quality Tests, Coverage Tests, Concentration Limitations, and Performing Collateral Par. As of May 1, 2024, the Borrower is in compliance with all performance metrics. The current transaction performance is within Morningstar DBRS’s expectations, which supports the confirmations on the Class A Loans.

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

(1) Overcollateralization Ratio Test: Subject to Collateral Quality Matrix (CQM); Actual 160.99% Threshold 137.06%
(2) Interest Coverage Ratio Test: Actual 166.91%; Threshold 125.00%
(3) Advance Rate Test: Subject to CQM; Actual 62.11%; Threshold 62.50%
(4) Minimum Weighted-Average (WA) Spread Test: Subject to CQM; Actual 6.34%; Threshold 5.75%
(5) Maximum WA Life Test: Actual 2.89 years; Threshold 5.00 years
(6) Minimum Diversity Score Test: Subject to CQM; Actual 34; Threshold 20
(7) Minimum WA Morningstar DBRS Recovery Rate Test: Subject to CQM; Actual 53.80%; Threshold 49.33%
(8) Maximum Morningstar DBRS Risk Score Test: Subject to CQM Actual 30.48; Threshold 38.30

The transaction is performing according to the parameters of the Credit Agreement. The Borrower is in compliance with all coverage and collateral quality tests as well as concentration limitations for portfolio collateral obligations. There were around $52.82 million in defaulted obligations registered in the underlying portfolio as of the May 1, 2024 trustee report date.

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 Class A Loans in an Event of Default.

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 US Dollars unless otherwise noted.

The principal methodologies applicable to the credit ratings is the Global Methodology for Rating CLOs and Corporate CDOs (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.

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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.

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.