Morningstar DBRS Confirms Credit Ratings on the Revolving Advances and Term Loan Issued by Cerberus RR Levered LLC

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the Revolving Advances and Term Loan (together, the Loans) issued by Cerberus RR Levered LLC (the Borrower) as follows:

-- The Revolving Advances at AAA (sf)
-- Term Loan at AAA (sf)

The Loans were issued pursuant to the Loan, Security and Servicing Agreement, dated as of May 5, 2022, as amended by the First Amendment to the Loan, Security and Servicing Agreement, dated as of December 1, 2022, by the Second Amendment to the Loan, Security and Servicing Agreement, dated as of September 14, 2023, and by the Third Amendment to the Loan, Security and Servicing Agreement, dated as of November 19, 2024 (the Loan Agreement), by and among Cerberus RR Levered LLC as the Borrower; Cerberus RR Levered Holdings LP as the Servicer and as the Transferor; Capital One, National Association (rated "A" with a Stable trend by Morningstar DBRS) as the Administrative Agent, Hedge Counterparty, Swingline Lender, and Arranger; U.S. Bank Trust Company, National Association (rated AA with a Stable trend by Morningstar DBRS) as Collateral Custodian; and each of the Lenders from time to time party thereto.

The credit ratings on the Loans address the timely payment of interest, other than interest attributable to Excess Interest Amounts (as defined in the Loan Agreement), and the ultimate payment of the aggregate principal amount of all Advances outstanding on or before the Facility Maturity Date (as defined in the Loan Agreement).

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating actions are a result of Morningstar DBRS' review of the Third Amendment to the Loan, Security and Servicing Agreement, dated November 19, 2024 (the Amendment), which extended the Reinvestment Period End Date and the Facility Maturity Date, reset the Applicable Spread and Interest Rate Cap, and updated the Concentration Limitations and Collateral Quality Matrix, among other changes. The Reinvestment Period end date is October 14, 2027. The Final Maturity Date October 14, 2031.

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 Loans 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) DBRS Morningstar's assessment of the origination, servicing, and CLO management capabilities of Cerberus RR Levered Holdings LP, an affiliate of Cerberus Capital Management II, L.P.
(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 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, the following metrics are selected accordingly from the applicable row of the CQM: Weighted-Average Risk Score, Weighted-Average Spread, and Recovery Rate. Morningstar DBRS analyzed the 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.

(1) Minimum OC Ratio: 162.60%; currently 314.47%
(2) Total Interest Coverage Ratio Test: 150.00%; currently 439.57%
(3) Portfolio Advance Rate: 53.00%; currently 31.80%
(4) Minimum Diversity Test: Subject to CQM: 15: currently 27
(5) Maximum DBRS Morningstar Risk Score Test: Subject to CQM: 36.36; currently 27.39
(6) Minimum WA DBRS Morningstar Recovery Rate Test: Subject to CQM: 46.60%; currently 49.60%
(7) Minimum WA Spread Test: Subject to CQM: 5.50%; currently 6.10%
(8) Minimum WA Fixed Rate Coupon Test: 6.50%; currently N/A

The transaction is performing according to the parameters of the Loan Agreement. The Borrower is in compliance with all coverage and collateral quality tests. Any breaches in concentration limitations are subject to excess concentration haircuts. There were three defaults registered in the portfolio accounting for $5,982,024.01. The current credit quality of the portfolio is reflected in its DBRS Morningstar Risk Score of 27.39.

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 WA credit quality of the underlying obligors may fall below investment grade (per the CQM), and the majority of obligors may not have public ratings once purchased, and (2) the underlying collateral portfolio may be insufficient to redeem the Loans 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 (September 19, 2024) https://dbrs.morningstar.com/research/439759 and CLO Insight Model v.1.0.1.4.

The model-based analysis produced satisfactory results. Considering the Amendment terms, as well as the transaction performance, Morningstar DBRS confirmed the above-mentioned credit ratings 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 is used in assigning ratings to a facility.

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 US dollars unless otherwise noted.

The principal methodology applicable to the credit ratings is Global Methodology for Rating CLOs and Corporate CDOs (September 19, 2024) https://dbrs.morningstar.com/research/439759 and the CLO Insight Model v1.0.1.4.

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.

DBRS, Inc.
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Tel. +1 212 806-3277

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

Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024)
https://dbrs.morningstar.com/research/428623

Operational Risk Assessment for Collateralized Loan Obligations (CLOs) and Corporate Collateralized Debt Obligations (CDOs) (August 23, 2024)
https://dbrs.morningstar.com/research/438315

Legal Criteria for U.S. Structured Finance (October 28, 2024)
https://dbrs.morningstar.com/research/441840

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.