Morningstar DBRS Confirms AA (sf) Credit Ratings on Class A-R, Class A-T Loans and Discontinues AA (sf) Credit Rating on Class A-T-2 Loans of Cerberus 2112 Levered LLC

DBRS, Inc. (Morningstar DBRS) confirmed its credit rating of AA (sf) on the Class A-R Loans, confirmed its credit rating of AA (sf) on the Class A-T Loans (formerly known as the Class A-T-1 Loans), and discontinued-repaid, by way of conversion into the Class A-T Loans, its credit rating of AA (sf) on the Class A-T-2 Loans (together, the Loans) issued by Cerberus 2112 Levered LLC, 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; Amendment No. 6 dated September 13, 2023; and Amendment No. 7 dated as of October 7, 2024), 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 Loans address the timely payment of interest (excluding any Excess Interest Amounts and any additional interest payable pursuant to Section 2.5(c)(ii), as defined in the amended Credit Agreement referred to above) and the ultimate payment of principal on or before the Final Maturity Date (as defined in the amended Credit Agreement referred to above).

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating actions, including the confirmation of the credit ratings on the Loans, are a result of Amendment No. 7 to the Credit Agreement (the Amendment) dated October 7, 2024, which converted the former Class A-T-1 Loans and Class A-T-2 Loans into a single Class A-T Loans, amended the Applicable Margin and Interest Rate Cap on the Loans, extended the Final Maturity Date, Reinvestment Period, and Maximum Weighted Average Life Test, and updated the Commitment Amounts of the Loans, among other changes.

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.

Cerberus 2112 Levered LLC 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 scheduled end date is October 7, 2026. The Final Maturity Date is October 7, 2033.

In its analysis, Morningstar DBRS considered the following aspects of the transaction:
(1) The Credit Agreement, dated October 8, 2020, as amended from time to time.
(2) The integrity of the transaction's structure pursuant to the Amendment.
(3) Morningstar DBRS's assessment of the portfolio quality.
(4) Relevant credit enhancement in the form of subordination and excess spread.
(5) Adequate credit enhancement to withstand Morningstar DBRS's projected collateral loss rates under various cash flow stress scenarios.
(6) Morningstar DBRS's assessment of the origination, servicing, and collateralized loan obligation (CLO) management capabilities of Cerberus 2112 Credit Holdings LLC, an affiliate of Cerberus Capital Management II, L.P.

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, as defined in Schedule I of the Credit Agreement).

Depending on a given Diversity Score (DScore), the following metrics are selected accordingly from the applicable row of the CQM: Morningstar DBRS Risk Score, Advance Rate, Overcollateralization (OC) Levels, and Weighted-Average (WA) Spread Level. Morningstar DBRS analyzed each structural configuration 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 modeled during its analysis are presented below:

-- OC Test: subject to the CQM: 137.06%
-- Interest Coverage Test: 125.00%
-- Maximum WA Life Test: 6.00 years
-- Minimum DScore: subject to the CQM: 10
-- Maximum Morningstar DBRS Risk Score Test: subject to the CQM: 49.13%
-- Minimum WA Morningstar DBRS Recovery Rate Test: subject to the CQM: 33.34%
-- Minimum WA Spread Test, subject to the CQM: 6.00%
-- Minimum WA Fixed-Rate Coupon Test: 8.00%

Some particular strengths of the transaction are (1) collateral quality, which consists primarily of senior-secured floating-rate middle market loans; (2) the adequate diversification of the current portfolio of collateral obligations; and (3) the Collateral Manager's expertise in CLOs and overall approach to selection of Collateral Obligations. Some of the challenges identified are: (1) the majority of the underlying loans do not have public ratings and require either a credit estimate and/or a private rating from DBRS Morningstar and (2) the underlying collateral portfolio may be insufficient to redeem the Loans in an Event of Default.

As of September 3, 2024, the transaction is in compliance with all Collateral Quality Tests, Coverage Tests, and Concentration Limitations. There were $29.3 million in defaulted obligations in the underlying portfolio.

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" (September 19, 2024; https://dbrs.morningstar.com/research/439759) and CLO Insight Model v. 1.0.1.2.

Model-based analysis, which had incorporated the above-mentioned amendments, produced satisfactory results. Considering the analysis, as well as the transaction's legal aspects and structure, Morningstar DBRS confirmed its credit rating on the Loans.

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 Loans.

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 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 (September 19, 2024; https://dbrs.morningstar.com/research/439759) and CLO Insight Model v. 1.0.1.2.

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 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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.