Morningstar DBRS Confirms Credit Ratings on the Loans Issued by Cerberus Onshore Levered IV LLC

DBRS, Inc. (Morningstar DBRS) confirmed its AAA (sf) credit ratings on each of the Class A-R Loans, the Class A-T-1 Loans, and the Class A-T-2 Loans (together, the Loans), issued by Cerberus Onshore Levered IV LLC (the Borrower), pursuant to the Credit Agreement, dated July 16, 2019 (as amended from time to time), among Cerberus Onshore Levered IV LLC as Borrower; Cerberus Levered IV Holdings LLC as Servicer and Retention Provider; the Lenders referred to therein; Natixis Bank, New York Branch as Administrative Agent; and U.S. Bank National Association (rated AA with a Stable Trend by Morningstar DBRS) as Collateral Agent and Custodian:

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 Credit Agreement) and the ultimate payment of principal on or before the Final Maturity Date (as defined in the Credit Agreement).

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 private rating letters 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.

CREDIT RATING RATIONALE/DESCRIPTION
The credit rating actions are a result of Morningstar DBRS' annual review of the transaction performance and application of the "Global Methodology for Rating CLOs and Corporate CDOs" (the CLO Methodology; November 19, 2024). The Reinvestment Period ended on September 16, 2022. The Stated Maturity Date is July 16, 2030. In its surveillance review, Morningstar DBRS applied the Level III approach, as described in the Global Methodology for Rating CLOs and Corporate CDOs, and incorporated the Current Profile analysis, since the transaction is past its reinvestment period.

The Loans are collateralized primarily by a portfolio of U.S. middle-market corporate loans. Cerberus Levered IV Holdings LLC, an affiliate of Cerberus Capital Management II, L.P., will service the Borrower. Morningstar DBRS considers the Servicer to be an acceptable collateralized loan obligation (CLO) servicer.

In its analysis, Morningstar DBRS considered the following aspects of the transaction:

(1) The Credit Agreement dated July 16, 2019, as amended from time to time.
(2) The integrity of the transaction structure.
(3) Morningstar DBRS' assessment of the portfolio quality.
(4) Adequate credit enhancement to withstand projected collateral loss rates under various cash flow stress scenarios.
(5) Morningstar DBRS' assessment of the origination, servicing, and CLO management capabilities of 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.

Some particular strengths of the transaction are: (1) the collateral quality, which consists entirely of first-lien middle-market loans; (2) the adequate diversification of the portfolio of collateral obligations; and (3) the Collateral Manager's expertise in CLOs and overall approach to selection of Collateral Loans. Some challenges identified were: (1) the Collateral Loans in the portfolio have experienced some defaults; and (2) the underlying collateral portfolio may be insufficient to redeem the Loans in an Event of Default.

Given a static pool, Morningstar DBRS analyzed the actual obligations in the pool as opposed to a hypothetical pool, governed by the covenanted test limitations. Morningstar DBRS analyzed each loan in the pool separately by inputting its credit rating, seniority, country of origin, and industry, among others, into the Morningstar DBRS CLO Insight Model. The Coverage Tests and triggers as well as the Collateral Quality Tests that Morningstar DBRS modelled during its analysis are presented below:

Coverage Tests
Class A Overcollateralization (OC) Ratio: Threshold 137.06 Current 232.42%
Class A Interest Coverage (IC) Ratio: Threshold 125.00%; Current 252.09%

Collateral Quality Tests
Minimum Diversity Score Test: Threshold 15; Current 16
Maximum Morningstar DBRS Risk Score Test: Threshold 32.79%; Current 32.17%
Minimum Weighted-Average Morningstar DBRS Recovery Rate Test: Threshold 49.40%; Current 50.80%
Minimum Weighted-Average Spread (WAS) Test: Threshold 6.25%; Current 6.27%

The transaction is performing according to the parameters set in the Financial Guarantees. As of February 3, 2025, each of the Coverage Tests, Collateral Quality Tests, and Concentration Limitations are in compliance. The credit rating confirmation is a result of the Current Profile analysis and the transaction performing within Morningstar DBRS' expectations.

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 the Morningstar DBRS Global Methodology for Rating CLOs and Corporate CDOs (November 19, 2024). Morningstar DBRS' analysis produced satisfactory results, which supported the credit rating confirmations.

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 methodologies applicable to the credit ratings are the Global Methodology for Rating CLOs and Corporate CDOs (November 19, 2024; https://dbrs.morningstar.com/research/443207) 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.
140 Broadway, 43rd Floor
New York, NY 10005 USA
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 (December 3, 2024)
https://dbrs.morningstar.com/research/444064

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