Morningstar DBRS Finalizes Credit Ratings on the Revolving Advances and Term Advances Issued by Cerberus Income Levered LP

DBRS, Inc. (Morningstar DBRS) finalized its following provisional credit ratings on the Revolving Advances and Term Advances (together, the Advances) issued by Cerberus Income Levered LP, pursuant to the Credit and Security Agreement, dated as of November 9, 2023, as amended by Amendment No. 1 to the Credit and Security Agreement, dated August 22, 2024 (the CSA), among Cerberus Income Levered LP, as the Borrower, Cerberus Income Levered Holdings LP, as the Servicer, Société Générale, as the Administrative Agent, Computershare Trust Company, N.A., as the Collateral Agent and Custodian, and the Lenders party thereto:

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

The credit ratings on the Advances address the timely payments of interest (excluding any Excess Interest Amounts, as defined in the CSA) and the ultimate payments of principal on or before the Final Maturity Date (as defined in the CSA).

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating actions are a result of Morningstar DBRS' review of Amendment No. 1 to the Credit Agreement, dated August 22, 2024 (the Amendment), which increased the Facility size to $200MM, reset the Reinvestment Period and the Final Maturity Date, and reduced the Facility Margin Level, among other changes. Additionally, Morningstar DBRS considered the elevation of all Closing Date Participation Interests to assignment, and the current performance of the transaction.

Cerberus Income Levered LP is a cash flow collateralized loan obligation (CLO) transaction that is collateralized primarily by a portfolio of U.S. senior secured middle-market (MM) corporate loans. The Reinvestment Period is scheduled to end on August 22, 2026. The Final Maturity Date is August 22, 2032.

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 Cerberus Income Levered Holdings 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 the Morningstar DBRS Legal Criteria for U.S. Structured Finance methodology (the Legal Criteria).

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 (the CQM). Depending on a given Diversity Score (DScore), the following metrics are selected accordingly from the applicable row of the CQM: Morningstar DBRS WA Risk Score, Advance Rate, Weighted Average Spread (WAS) and Weighted Average Recovery Rate (WARR). Morningstar DBRS analyzed each structural configuration (as defined in Schedule 7 of the CSA) as a unique transaction and all configurations (rows) passed the applicable Morningstar DBRS rating stress levels. The Coverage Tests and triggers as well as the Collateral Quality Tests that Morningstar DBRS modelled during its analysis are presented in the tables below.

(1) Overcollateralization Test: Subject to the CQM; 143.85% - 190.0%
(2) Interest Coverage Test: 110.0%
(3) Minimum Weighted Average Spread Test: Subject to the CQM; 5.00%
(4) Weighted-Average Life Test: 6.50 years
(5) Minimum Diversity Score Test: Subject to the CQM; 15
(6) Minimum Weighted Average Morningstar DBRS Recovery Rate Test: Subject to the CQM; 48.00%
(7) Minimum Weighted Average Coupon Test: 8.00%
(8) Maximum Morningstar DBRS Risk Score Test: Subject to the CQM; 41.00%

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 Advances in an Event of Default.

As of July 1, 2024, the transaction is in compliance with all the Eligibility Criteria, coverage tests and collateral quality tests. There have not been any defaults in the portfolio to date.

Morningstar DBRS analyzed the transaction using the Morningstar DBRS CLO Insight Model and its proprietary cash flow engine, which incorporated assumptions regarding principal amortization, principal prepayment, amount of interest generated, principal prepayments, default timings, and recovery rates, among other credit considerations referenced in Morningstar DBRS' "Global Methodology for Rating CLOs and Corporate CDOs" (February 23, 2024; https://dbrs.morningstar.com/research/428544) and CLO Insight Model v. 1.0.1.2.

Model-based analysis, which had incorporated the above-mentioned amendments and the addition of rows to the collateral quality matrix, produced satisfactory results. Considering the analysis, as well as the transaction's legal aspects and structure, Morningstar DBRS finalized its 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 ratings; rather, they represent a model-driven default probability for each obligor that Morningstar DBRS uses when rating the Advances.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

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.

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 (August 13, 2024; https://dbrs.morningstar.com/research/437781).

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

The principal methodology applicable to the credit rating 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 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.