Morningstar DBRS Confirms Credit Ratings on the Class A Loans of Cerberus 2112 Levered LLC

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the Class A-R Loans, Class A-T-1 Loans and Class A-T-2 Loans (together, the Class A Loans) issued by Cerberus 2112 Levered LLC (the Borrower) as follows:

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

The Class A Loans were issued pursuant to the Credit Agreement dated October 8, 2020 (as amended by Amendment No. 1 dated December 23, 2020; Amendment No. 2 dated July 20, 2021; Amendment No. 3 dated February 4, 2022; Amendment No. 4 dated October 7, 2022; Amendment No. 5 dated March 3, 2023; and Amendment No. 6 dated as of September 13, 2023), among Cerberus 2112 Levered LLC as the Borrower; Cerberus 2112 Credit Holdings LLC as the Servicer; Natixis, New York Branch as the Administrative Agent; U.S. Bank Trust Company, National Association (rated AA with a Stable trend by Morningstar DBRS) as the Collateral Agent; U.S. Bank National Association (rated AA with a Stable trend by Morningstar DBRS) as the Custodian; and the Lenders party 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, as defined in the Credit Agreement) and the ultimate payment of principal on or before the Final Maturity Date (as defined in the Credit Agreement).

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating actions are a result of Morningstar DBRS’ annual review of the transaction’s performance. The Reinvestment Period end date is October 7, 2024. The Maturity Date of the Class A Loans is October 7, 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’ expectation, 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:

-- Overcollateralization Ratio Test: Subject to Collateral Quality Matrix; Actual 161.14%; Threshold 137.06%
-- Interest Coverage Test: Actual 138.88%; Threshold 125.00%
-- Advance Rate Test: Subject to Collateral Quality Matrix; Actual 62.06%; Threshold; 65.00%
-- Maximum WA Life Test: Actual 3.03 years; Threshold 4.75 years
-- Minimum DScore: Subject to Collateral Quality Matrix; Actual 40; Threshold 20
-- Maximum Risk Score Test: Subject to Collateral Quality Matrix; Actual 26.78; Threshold 32.79
-- Minimum WA Recovery Rate Test: Subject to Collateral Quality Matrix; Actual 53.90%; Threshold 47.99%
-- Minimum WA Spread Test: Subject to Collateral Quality Matrix; Actual 6.50%; Threshold 6.00%

Some particular strengths of the transaction are (1) collateral quality, which will consist primarily of senior-secured floating-rate middle market loans; (2) the adequate diversification of the current portfolio of collateral obligations (actual Diversity Score of 40, which exceeds the threshold of 20); and (3) the Collateral Manager’s expertise in CLOs and overall approach to selection of Collateral Obligations. Some challenges were identified: (1) the majority of the underlying loans have no public ratings and require either a credit estimate and/or a private rating from Morningstar DBRS and (2) the underlying collateral portfolio may be insufficient to redeem the Loans in an Event of Default.

The transaction is performing according to the contractual requirements of the Credit Agreement. As of May 1, 2024, the Borrower is in compliance with all coverage and collateral quality tests as well as concentration limitations for portfolio collateral obligations. There were around $29.39 million in defaulted obligations registered in the underlying portfolio as of the May 1, 2024 trustee report date.

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 methodology 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.

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.