Morningstar DBRS Confirms Provisional Credit Ratings on the Notes Issued by Parliament Funding IV LLC

DBRS, Inc. (Morningstar DBRS) confirmed its following provisional credit ratings on the Class A Notes, the Class B Notes, and the Class C Notes (together, the Notes) issued by Parliament Funding IV LLC pursuant to the Indenture dated June 28, 2024, as amended by the First Supplemental Indenture dated September 20, 2024, (the Supplemental Indenture) by and between Parliament Funding IV LLC, as Issuer and State Street Bank and Trust Company, as Trustee:

-- Class A Notes: at AAA (sf)
-- Class B Notes: at BBB (sf)
-- Class C Notes: at BB (low) (sf)

The provisional credit rating on the Class A Notes addresses the timely payment of interest (excluding the post-Event of Default interest rate of 2.00% per annum) and the ultimate payment of principal on or before the Stated Maturity. The provisional credit ratings on the Class B Notes and Class C Notes address the ultimate payment of interest (excluding the post-Event of Default interest rate of 2.00% per annum) and the ultimate payment of principal on or before the Stated Maturity.

Morningstar DBRS' provisional credit ratings on the Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the interest (excluding the post-Event of Default interest rate of 2.00% per annum) and principal due on the Notes.

Morningstar DBRS' provisional credit ratings do not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations. For example, the provisional credit ratings do not address the post-Event of Default interest rate of 2.00% per annum or any indemnities and expenses payable to the Noteholders.

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.

CREDIT RATING RATIONALE/DESCRIPTION

The credit rating actions are a result of Morningstar DBRS' review of the Supplemental Indenture which increased the deal size by US $75 million, among other changes. The Reinvestment Period ends on December 31, 2028. The Stated Maturity is January 15, 2037.

The Notes are collateralized primarily by a portfolio of U.S. middle-market corporate loans. The Issuer is managed by Owl Rock Diversified Advisors LLC, an affiliate of Blue Owl Capital Inc. Morningstar DBRS considers Owl Rock Diversified Advisors LLC an acceptable collateralized loan obligation (CLO) manager.

The credit ratings reflect the following primary considerations:

(1) The Supplemental Indenture dated September 20, 2024.
(2) The integrity of the transaction's structure.
(3) Morningstar DBRS' assessment of the portfolio quality and covenants.
(4) Adequate credit enhancement to withstand Morningstar DBRS' projected collateral loss rates under various cash flow-stress scenarios.
(5) Morningstar DBRS' assessment of the origination, servicing, and CLO management capabilities of Owl Rock Diversified Advisors LLC.
(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 transaction has a dynamic structural configuration that permits variations of certain asset metrics via a selection of an applicable row from a collateral quality test matrix (the CQM, as defined in Schedule 5 of the Supplemental Indenture). Depending on a given Diversity Score (DScore), the following metrics are selected accordingly from the applicable row of the CQM: Maximum Average Morningstar DBRS Risk Score Test, and Weighted-Average Spread (WAS). Morningstar DBRS analyzed each structural configuration as a unique transaction, and all configurations (matrix points) passed the applicable Morningstar DBRS rating stress levels. The Coverage Tests and triggers as well as the Collateral Quality Tests that Morningstar DBRS modeled during its analysis are presented below:

(1) Class A Asset Coverage Test: minimum 170.00%
(2) Class B Asset Coverage Test: minimum 120.00%
(3) Class C Asset Coverage Test: minimum 111.15%
(4) Maximum Average Morningstar DBRS Risk Score Test: Subject to the CQM; maximum 41.37%
(5) Minimum WAS Test: Subject to the CQM; minimum 4.00%
(6) Minimum Weighted Average Coupon Test: 5.00%
(7) Minimum DScore: Subject to the CQM; minimum 8

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 Notes in an Event of Default.

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).

Model-based analysis produced satisfactory results. Considering the analysis, as well as the transaction's legal aspects and structure, Morningstar DBRS confirmed the provisional credit ratings on the Notes.

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 Notes.

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 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 rating was initiated at the request of the rated entity. The credit rating was initiated at the request of a third party.

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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned Notes 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 Notes 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) (August 23, 2024; https://dbrs.morningstar.com/research/438315)

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.