Morningstar DBRS Confirms Credit Rating on the Advances of Cerberus Stepstone Levered LLC

DBRS, Inc. (Morningstar DBRS) confirmed the following credit rating to the Advances of Cerberus Stepstone Levered LLC, pursuant to the Facility Agreement, dated as of January 4, 2024 by and among Cerberus Stepstone Levered LLC, as the Borrower, Cerberus Stepstone Credit Holdings LLC, as the Servicer, NatWest Markets Plc, as the Lead Lender, Alter Domus (US) LLC, as the Loan Agent, Computershare Trust Company, N.A., as the Collateral Agent and Collateral Custodian, and each of the Lenders from time to time party thereto:

-- Advances at A (high) (sf)

The credit rating on the Advances addresses the timely payment of interest (excluding any Step-Up Margin, Prepayment Penalty, Costs and Expenses, Break Costs, and/or Indemnified Amounts, as defined in the Facility Agreement) and the ultimate payment of principal on or before the Facility Maturity Date (as defined in the Facility Agreement).

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating action is a result of Morningstar DBRS' annual review of the transaction performance by applying the "Global Methodology for Rating CLOs and Corporate CDOs" (the CLO Methodology; November 19, 2024; https://dbrs.morningstar.com/research/443207).

Cerberus Stepstone 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. Cerberus Stepstone Levered LLC is serviced by Cerberus Stepstone Credit Holdings LLC, an affiliate of Cerberus Capital Management II, L.P. (Cerberus). Morningstar DBRS considers Cerberus to be an acceptable collateralized loan obligation (CLO) manager. The Reinvestment Period is scheduled to end on January 4, 2026. The Facility Maturity Date is January 4, 2034.

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 Loans, subject to the Eligibility Criteria, Concentration Limitations, Collateral Quality Tests, and Senior Coverage Tests.
(5) Assessment of the CLO management capabilities of Cerberus Stepstone Credit Holdings LLC, 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.
Morningstar DBRS monitors transaction performance metrics based on the periodicity of the transaction's reporting. The performance metrics include Collateral Quality Tests, Coverage Tests, Concentration Limitations, and Performing Collateral Par. As of November 1, 2024, the transaction is in compliance with all performance metrics. The current transaction performance is within Morningstar DBRS' expectations, which supports the credit rating confirmations on the Notes, as per the Level I surveillance analysis in the CLO Methodology. No predictive model is utilized in the Level I surveillance process.

The coverage and collateral quality test reported values and thresholds, respectively, that Morningstar DBRS reviewed are as follows:

(1) Senior OC Test: 143.00%; currently 179.20%
(2) Senior IC Test: 175.00%; currently N/A
(3) Minimum Diversity Score Test: Subject to CQM; 23; currently 41
(4) Maximum Morningstar DBRS Risk Score Test: 30.25%; currently 24.00%
(5) Minimum Weighted-Average Recovery Rate Test: 49.0%; currently 53.9%
(6) Minimum Weighted-Average Spread Test: Subject to CQM; 6.00%; currently 6.46%
(7) Minimum Weighted-Average Coupon Test: Subject to CQM; 8.50%; currently N/A

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 Loans.

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 may not have public ratings once purchased, and (2) the underlying collateral portfolio may be insufficient to redeem the Advances in a Termination Event.

As of November 1, 2024, the Borrower is in compliance with all Concentration Limitations, Coverage and Collateral Quality Tests. There are no defaulted obligations registered in the underlying portfolio.

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. The Morningstar DBRS short-term debt rating scale provide 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 US dollars unless otherwise noted.

The principal methodology applicable to the credit rating is the Global Methodology for Rating CLOs and Corporate CDOs (November 19, 2024) https://dbrs.morningstar.com/research/443207.

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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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.