Morningstar DBRS Confirms Credit Ratings on New Mountain Guardian Rated Feeder I, Ltd.

DBRS, Inc. (Morningstar DBRS) confirmed the credit ratings of New Mountain Guardian Rated Feeder I, Ltd, (the Feeder Fund), including the Class A Loan due 2036, Class A-1 Senior Secured Deferrable Fixed Rate Notes due 2036 at A (low); Class A-2 Senior Secured Deferrable Fixed Rate Notes due 2036 at A (low); and the Class B Senior Secured Deferrable Fixed Rate Notes due 2036 at BBB (low) (together, the Rated Debt). All credit ratings have a Stable trend. The aforementioned credit ratings address the ultimate payment of interest and the ultimate payment of principal on or before maturity.

KEY CREDIT RATING CONSIDERATIONS

CREDIT RATING DRIVERS
-- If the composition of the fund were to be of a higher credit quality than anticipated, or include a higher percentage of senior secured first lien loans to corporate borrowers the credit ratings could be upgraded.

-- If the BDC (Main Fund) senior secured debt (ABL) facilities are paid down and terminated, the credit ratings could be upgraded.

-- The credit ratings would be downgraded if the asset analysis assessment is weaker than anticipated which could be driven by: (1) weaker than expected credit risk of investments, (2) lesser diversity of portfolio investments than planned, and/or (3) a persistently lower ACR than anticipated without a credible plan to remediate.

CREDIT RATING RATIONALE
The credit ratings are supported by the Feeder Fund's ownership in New Mountain Guardian IV BDC, L.L.C. ("NMG IV" or "Main Fund"), which is considered a strategic investment vehicle managed by New Mountain Capital, LLC (NMC). The Main Fund is the fourth in a series of funds managed by NMC, where the previous funds have demonstrated a strong investment and performance track record. Given NMC's demonstrated track record of underwriting and risk management, as well as successful initial fundraising for the Main Fund, Morningstar DBRS assumes NMG IV ramps as anticipated. While Morningstar DBRS has made certain assumptions around the expected asset composition and credit quality of the Main Fund investment portfolio as it ramps to a diversified pool, we are also monitoring the existing pool of investments to be sure that there is appropriate overcollateralization in the transaction.

Morningstar DBRS constructed an expected investment portfolio based upon NMC's historical track record in the fund series, sample loan tape of investments, and expectations for NMG IV. Additionally, Morningstar DBRS reviewed loan-level details for actual investments in the Main Fund. Specifically, Morningstar DBRS uses its CLO Insight Model as a tool to analyze the loan portfolio based on investment-level characteristics that drive assumptions around probability of default and expected recoveries for each investment. These characteristics include the credit quality, domicile, maturity, obligor and industry diversity and seniority of each debt investment. Morningstar DBRS has privately assessed the credit quality of a majority of the debt investments in the Main Fund, and used these assessments within our modeling tools. As investments are made within NMG IV, Morningstar DBRS expects to continue to assess the credit quality of a majority of the investments in the portfolio. These expected portfolio characteristics are aggregated to determine the ACR ranges applicable to the Rated Debt.

The investments within NMG IV, which support net cash proceeds to the Feeder Fund, are expected to benefit from the track record, relationships, and expertise of NMC. NMC has demonstrated a strong historical track record in the private credit sector, specifically with expertise in direct lending to middle market and upper middle market companies based in the U.S. NMC focuses on downside protection and collateral preservation with an average loan-to-value ratio (LTV) of ~35%. While the Main Fund is a BDC, it has a term and is not intended to be perpetual. It is similar to a General Partner/Limited Partner Fund, but with additional disclosure requirements consistent with BDCs. Benefitting the Feeder Fund, the Main Fund (as a BDC) is required to distribute at least 90% of its income to maintain its BDC status and 98% of its Income for beneficial tax treatment.

The Main Fund uses leverage via asset-backed facilities, and is expected to maintain fund-level leverage of approximately 0.75:1 at NMG IV. The Main Fund also uses a subscription line. As the Main Fund increases in size, it is expected the Main Fund will increase the asset-backed facilities and subscription line accordingly. The advance rate of the subscription line is not expected to exceed 70%. This capital call facility is expected to serve as a liquidity facility only and will be paid down periodically as investors meet capital calls. NMC expects to paydown the subscription loan facility once NMG IV is fully called.

Morningstar DBRS' analysis, which incorporates the aforementioned analytical factors, implies a rating of "A" for the Class A Loan and Class A Notes and "BBB" for the Class B Notes. This credit rating level incorporates a strong fund manager assessment, anticipated and actual fund composition, assessment of credit quality on existing and anticipated investments, and quantitative modeling. Morningstar DBRS has used the low end within the Fund ACR ranges for the Rated Debt.

The cumulative advance rates on the Rated Debt is based on the above assessment, resulting in a cumulative advance rate of 69% for the Class A Loan and Class A Notes, and 74% for the Class B Notes. The cumulative advance rates for the Class A Debt and Class B Notes consider expected usage of the asset-backed facilities. The A (low) credit rating on the Class A debt, and BBB (low) credit rating on the Class B Notes are each one notch lower than the implied ratings mentioned above as a result of the effective subordination of the Rated Debt's claim on the Main Fund assets, and the senior position of the asset-backed facilities.

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 Factors in Credit Ratings (13 August 2024) https://dbrs.morningstar.com/research/437781

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Debt Issued by Investment Funds (01 May 2024) https://dbrs.morningstar.com/research/432214. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024) https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The primary sources of information used for these credit ratings include Morningstar, Inc. and company documents. Other sources include Morningstar, Inc., Wells Fargo, and company documents. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings was of satisfactory quality.

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.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS's outlooks and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit dbrs.morningstar.com.

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