Morningstar DBRS Finalizes Credit Rating on the Advances Issued by Cerberus EU Levered V LLC

DBRS, Inc. (Morningstar DBRS) finalized its provisional credit rating on the Advances issued by Cerberus EU Levered V LLC pursuant to the Loan, Security and Servicing Agreement (Loan Agreement) dated October 2, 2024, among Cerberus EU Levered V LLC, as the Borrower; Cerberus EU Levered V Holdings LP, as the Servicer and the Transferor; Capital One, National Association, as the Administrative Agent, Lender, and Arranger; U.S. Bank Trust Company, National Association, as the Collateral Custodian; and the Lenders party thereto, as follows:

-- The Advances: AA (sf)

The credit rating on the Advances addresses the timely payments of interest (excluding any Excess Interest Amounts, Increased Costs, Breakage Costs, Costs and Expenses, and/or Indemnified Amounts, as defined in the Loan Agreement) and the ultimate payment of principal on or before the Facility Maturity Date (as defined in the Loan Agreement).

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating action is a result of Morningstar DBRS' 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) in addition to the satisfaction of certain conditions to finalize the credit ratings, including satisfaction of the transaction's Target Rating Trigger Date, compliance with all Collateral Quality Tests, Coverage Tests, and Concentration Limitations, and a Diversity Score of at least 8.

Cerberus EU Levered V 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 Scheduled Revolving Period End Date is October 2, 2027. The Facility Maturity Date is October 2, 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 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 EU Levered V 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.

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 December 31, 2024, the transaction is in compliance with all performance metrics. The current transaction performance is within Morningstar DBRS' expectations, which supports the credit rating finalization on the Advances, as per the Level I surveillance analysis in the CLO Methodology. No predictive model is utilized in the Level I surveillance process.

(1) Overcollateralization Ratio Test: threshold 142.90%; actual 433.64%
(2) Total Interest Coverage Ratio Test: threshold 150.0%; actual 217.38%
(3) Minimum Weighted-Average Spread Test: Subject to CQM; threshold 5.50%; actual 6.08%
(4) Maximum Weighted-Average Life Test: threshold 6.75 years; actual 4.19 years
(5) Minimum Diversity Score Test: Subject to CQM; threshold 10; actual 13
(6) Minimum Weighted Average DBRS Recovery Rate Test: Subject to CQM; threshold 45.25%; actual 49.20%
(7) Minimum Weighted Average Coupon Test: threshold 6.50%; actual N/A
(8) Maximum DBRS Risk Score Test: Subject to CQM; threshold 46.50%; actual 21.84%

As of the December 31, 2024 trustee report date, there are no defaulted obligations registered in the portfolio.

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 Eligible Loans.

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.

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 transaction's 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 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 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 (December 3, 2024)
https://dbrs.morningstar.com/research/444064

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