Morningstar DBRS Assigns Provisional Credit Ratings to the Advances of Kaamanen Levered B, LP

DBRS, Inc. (Morningstar DBRS) assigned the following public provisional credit ratings on the Swingline Advances, the Revolving Advances, and the Term Advances (together, the Advances) issued by Kaamanen Levered B, LP:

-- Swingline Advances at AA (sf)
-- Revolving Advances at AA (sf)
-- Term Advances at AA (sf)

The Advances are pursuant to the Credit Agreement, dated as of August 7, 2024 (the Credit Agreement), among Kaamanen Levered B, LP, as the Borrower; Kaamanen Holdings B, LP, as the Servicer; The Bank of Nova Scotia, as the Administrative Agent; U.S. Bank Trust Company, N.A., as the Collateral Agent and Custodian, and the Lenders party thereto.

The provisional credit ratings on the Advances address the timely payments of interest (excluding any Excess Interest Amounts, Increased Costs, Breakage Costs, and/or Indemnified Amounts as defined in the Credit Agreement referred to above) and the ultimate payments of principal on or before the Final Maturity Date (as defined in the Credit Agreement referred to above).

CREDIT RATING RATIONALE/DESCRIPTION
Kaamanen Levered B, LP is a cash flow collateralized loan obligation (CLO) transaction that is collateralized primarily by a portfolio of U.S. senior secured middle-market corporate loans. The Reinvestment Period is scheduled to end on February 7, 2027. The Final Maturity Date is August 7, 2033.

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) Assessment of the CLO management capabilities of Kaamanen Holdings B, LP, an affiliate of Cerberus Capital Management II, L.P., as the Servicer.
(6) The legal structure as well as legal opinions addressing certain matters of the Borrower and the consistency with Morningstar DBRS' "Legal Criteria for U.S. Structured Finance" methodology.

The transaction has a dynamic structural configuration which permits variations of certain asset metrics via a selection of an applicable row from a collateral quality matrix (CQM). Depending on a given Diversity Score, the following metrics are selected accordingly from the applicable row of the CQM: Morningstar DBRS Weighted Average Risk Score, Senior Advance Rate, Weighted Average Spread, Weighted Average Recovery Rate, and Overcollateralization Test. Morningstar DBRS analyzed each structural configuration (as defined in Schedule 7 of the Credit Agreement) as a unique transaction and all configurations (rows) passed the applicable Morningstar DBRS credit rating stress levels. The Coverage Tests and the Collateral Quality Tests that Morningstar DBRS modeled during its analysis are presented in the tables below:

(1) Overcollateralization Test: Subject to CQM; 138.46% to 225.00%
(2) Interest Coverage Test: 130.0%
(3) Minimum Weighted-Average Spread Test: Subject to CQM; 5.00% to 6.50%
(4) Weighted-Average Life Test: 6.75 years
(5) Minimum Diversity Score Test: Subject to CQM; 10 to 30
(6) Minimum Weighted-Average DBRS Recovery Rate Test: Subject to CQM; 44.41% to 61.00%
(7) Minimum Weighted-Average Coupon Test: 8.00%
(8) Maximum DBRS Risk Score Test: Subject to CQM; 29.95% to 75.21%

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, CQM-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 credit ratings once purchased; and (2) the underlying collateral portfolio may be insufficient to redeem the Advances in an Event of Default.

Morningstar DBRS modeled the transaction using the Morningstar DBRS CLO Insight Model and its proprietary cash flow engine, which incorporated assumptions regarding principal amortization, amount of interest generated, default timings, and recovery rates, among other credit considerations referenced in Morningstar DBRS' "Global Methodology for Rating CLOs and Corporate CDOs." Model-based analysis produced satisfactory results, which supported the provisional 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 credit ratings; rather, they represent a model-driven default probability for each obligor that Morningstar DBRS uses when rating the Advances.

Morningstar DBRS' credit rating on the Advances addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are interest at the Applicable Margin and Benchmark, the Commitment Fees and principal on the Advances, each as defined in the Credit Agreement.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, the credit rating on the Advances does not address any Excess Interest Amounts, Increased Costs, Breakage Costs, and/or Indemnified Amounts, each as defined in the Credit Agreement.

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.

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 (February 23, 2024), https://dbrs.morningstar.com/research/428544, and the CLO Insight Model v1.0.1.2.

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

A provisional credit rating is not a final credit rating with respect to the above-mentioned Advances and may change or be different than the final credit rating assigned or may be discontinued. The assignment of the final credit ratings on the above-mentioned Advances are subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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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 Collateralized Loan Obligations (CLOs) and Corporate Collateralized Debt Obligations (CDOs) (September 14, 2023), https://www.dbrsmorningstar.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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.