Morningstar DBRS Confirms Credit Ratings on the Class A Loans of Cerberus PSERS Levered LLC

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the Class A-R Loans and the Class A-T Loans (together, the Class A Loans) issued by Cerberus PSERS Levered LLC as follows:

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

The Class A Loans were issued pursuant to the Credit Agreement, as amended from time to time (the Credit Agreement), among Cerberus PSERS Levered LLC as the Borrower, Cerberus PSERS Levered Loan Opportunities Fund, L.P. as the Servicer, Natixis, New York Branch as the Administrative Agent, U.S. Bank National Association as the Custodian, U.S. Bank Trust Company National Association as the Collateral Agent, and each of the Lenders from time to time thereto.

The credit ratings on the Class A Loans address the timely payment 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 payment of principal on or before the Final Maturity Date (as defined in the amended Credit Agreement).

The Class A Loans are collateralized primarily by a portfolio of U.S. middle-market corporate loans. The servicer for Cerberus PSERS Levered LLC is Cerberus PSERS Levered Loan Opportunities Fund, L.P., an affiliate of Cerberus Capital Management II, L.P. Morningstar DBRS considers Cerberus PSERS Levered Loan Opportunities Fund, L.P.to be an acceptable collateralized loan obligation (CLO) servicer.

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating action is a result of Morningstar DBRS’ annual review of the transaction’s performance. The Reinvestment Period end date is November 22, 2024. The Final Maturity Date is November 22, 2031.

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 163.64%; Threshold 137.06%
(2) Interest Coverage Test: Actual 162.13%; Threshold 125.00%
(3) Advance Rate Test: Subject to CQM; Actual 61.11%; Threshold 62.50%
(4) Maximum Weighted-Average (WA) Life Test: Actual 2.90 years; Threshold 4.50 years
(5) Maximum Morningstar DBRS Risk Score Test: Subject to CQM; Actual 28.33; Threshold 32.79
(6) Minimum WA Morningstar DBRS Recovery Rate Test: Subject to CQM; Actual 53.90%; Threshold 46.60%
(7) Minimum WA Spread Test: Subject to CQM; Actual 6.59%; Threshold 6.25%
(8) Minimum Diversity Score Test: Subject to CQM; Actual 38; Threshold 20

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 $36.52 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 Collateral Manager’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 are 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.

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.

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.