Morningstar DBRS Assigns Provisional Credit Ratings to NALP Business Loan Trust 2025-1

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes of notes (collectively, the Notes or Series 2025-1) to be issued by NALP Business Loan Trust 2025-1:

-- $155,930,000 Class A Notes at (P) A (low) (sf)
-- $23,820,000 Class B Notes at (P) BBB (sf)
-- $4,330,000 Class C Notes at (P) BB (sf)

CREDIT RATING RATIONALE/DESCRIPTION
The provisional credit ratings are based on Morningstar DBRS' review of the following analytical considerations:

(1) The transaction assumptions consider Morningstar DBRS' baseline macroeconomic scenarios for rated sovereign economies, available in its commentary "Baseline Macroeconomic Scenarios for Rated Sovereigns March 2025 Update," published on March 26, 2025. These baseline macroeconomic scenarios replace Morningstar DBRS' moderate and adverse COVID-19 pandemic scenarios, which were first published in April 2020.

(2) The collateral pool loans were sourced, reviewed, and underwritten relying on the same personnel and consistent with practices and on the terms utilized by Newtek (or the Company) for conforming Small Business Administration (SBA) 7(a) loans.

(3) For the Expected Final Pool, Morningstar DBRS' stressed cumulative net loss (CNL) hurdle rate of 41.53% in the cash flow scenarios is commensurate with the Class A Notes credit rating of (P) A (low) (sf), the CNL hurdle rate of 35.17% is commensurate with the Class B Notes credit rating of (P) BBB (sf), and the CNL hurdle rate of 27.54% is commensurate with the Class C Notes credit rating of (P) BB (sf). For the Closing Pool, Morningstar DBRS' stressed CNL hurdle rate of 42.27% in the cash flow scenarios is commensurate with the Class A Notes credit rating of (P) A (low) (sf), the CNL hurdle rate of 35.72% is commensurate with the Class B Notes credit rating of (P) BBB (sf), and the CNL hurdle rate of 27.78% is commensurate with the Class C Notes credit rating of (P) BB (sf). The Class A Notes and Class B Notes are rated to the timely payment of interest and ultimate payment of principal by the Maturity Date. The Class C Notes are rated to the ultimate payment of interest and ultimate payment of principal by the Maturity Date.
-- Morningstar DBRS did not assign any credit to seasoning of the Fully Funded Pool collateral for the Series 2025-1 transaction of approximately four months as of the Initial Cut-Off Date (the weighted-average (WA) remaining term for the Closing Pool as of the same date was 250 months).
-- Morningstar DBRS' stressed CNL hurdle rate was derived using the custom probability of default curve, which was input into the Morningstar DBRS CLO Insight Model. The WA expected cumulative gross default rate assumed by Morningstar DBRS as an input to the Morningstar DBRS CLO Insight Model for the Expected Final Pool was 32.54% and for the Closing Pool was 32.63%.
-- Morningstar DBRS used a stressed recovery rate of 29.35% in the cash flow scenarios commensurate with a (P) A (low) (sf) credit rating, 33.40% commensurate with a (P) BBB (sf) credit rating, and 36.22% commensurate with a (P) BB (sf) credit rating for the Expected Final Pool. For the Closing Pool, Morningstar DBRS used a stressed recovery rate of 29.88% in the cash flow scenarios commensurate with a (P) A (low) (sf) credit rating, 34.12% commensurate with a (P) BBB (sf) credit rating, and 36.88% commensurate with a (P) BB (sf) credit rating. The recovery rate assumption was derived primarily based on the value of first-lien commercial real estate (CRE) and residential real estate (RRE) as well as machinery and equipment, as applicable. In some cases, limited recovery credit was given to the appraised value of land and to furniture and fixtures and other assets. No recovery credit was given to non-first-lien assets pledged as collateral, including CRE and RRE properties.

(4) Morningstar DBRS' cash flow analysis tested the ability of the transaction to generate cash flows sufficient to service the interest and principal payments on the Class A Notes, Class B Notes, and Class C Notes under two different default timing scenarios and with two different prepayment scenarios beginning in Year 2 for both the Expected Final Pool and the Closing Pool.

(5) The transaction's capital structure and form and sufficiency of available credit enhancement. Overcollateralization, cash held in the Reserve Account and Capitalized Interest Account, available excess spread, and other structural provisions create credit enhancement levels that are commensurate with the credit ratings on the Class A Notes, Class B Notes, and Class C Notes.
-- The initial overcollateralization as of the closing date will be equal to 15.00% of the aggregate collateral loan balance.
-- The replenishable cash reserve account will be funded at 2.00% of the initial Pool Balance.
-- The WA coupon for the collateral pool was approximately 13.34% as of the Initial Cut-Off Date for the Closing Pool. As the prefunding loans are already identified, the WA coupon is expected to decrease to 13.30% following the end of the Prefunding Period. All of the loans are floating rate, with the interest rates resetting periodically on the respective Adjustment Date. On each Adjustment Date, the loan rate will be adjusted to equal the sum of the related index and a fixed percentage amount (the Gross Margin). As of the Initial Cut-Off Date, the WA number of months until the next Adjustment Date was approximately 52, ranging from zero to 65 months. In its stressed cash flow scenarios, Morningstar DBRS assumed the current loan rate for each loan until its respective Adjustment Date. After that, the loan rate was the index for each loan as determined by the Morningstar DBRS interest rate curves, plus the Gross Margin.

(6) The collateral for the transaction is represented by a discrete, amortizing pool of loans; however, the transaction includes an approximately four-month Prefunding Period, during which already-identified business loans are expected to be added. These business loans comprise loans to eight obligors with a total original loan balance of approximately $32.15 million. The Prefunding Period will begin on the closing date and ends on the earlier of (A) the day before the August 2025 Payment Date, (B) the occurrence of a Trigger Event, and (C) the occurrence and continuance of an unwaived indenture default.
-- The prefunded loans are all floating rate and have a WA original term of 292 months. With the exception of three business loans, the obligors of the loans expected to be added during the Prefunding Period have been in business for at least 13 years. The prefunded business loans account for 14.85% of the current collateral balance for the Expected Final Pool.

(7) The Expected Final Pool comprises 47 loans to 45 obligors. Two obligors are represented by two loans that are cross-collateralized. For Morningstar DBRS' analysis, the collateral for each such obligor was combined. Other collateral, including but not limited to enterprise value and business valuation, account for more than 50% of the primary collateral type, with CRE accounting for approximately 25% of the primary collateral type (as classified by Newtek) as of the Initial Cut-Off Date. Other primary collateral types include machinery and equipment (13.7%), accounts receivable and inventory (9.8%), and RRE accounting for only approximately 0.7% of the primary collateral.
-- Loans representing approximately 46% of the collateral pool have a current loan-to-value ratio (LTV) (as determined by Newtek and adjusted for prior liens) of between 50% and 80%. Loans representing about 80% of the aggregate collateral loan balance have a current LTV of 70% or below.
-- California, Florida, and Texas represented the three largest geographical concentrations of approximately 12.9%, 12.0%, and 11.5% of the aggregate collateral loan balance of the Expected Final Pool. The top three obligors in the collateral pool accounted for approximately 20.7% of the total current collateral loan balance of the Closing Pool as of the Initial Cut-Off Date plus the loans expected to be acquired during the Prefunding Period. The largest loans (two loans with $15 million balances) each account for approximately 6.9% of the current borrower balance. Approximately 37.1% of the aggregate current collateral loan balance of the Expected Final Pool was represented by borrowers in the food services and drinking places; educational services; and professional, scientific, and technical services industries.

(8) On February 3, 2025, Morningstar DBRS received a surveillance update from Newtek which noted no material changes from the May 2024 operational risk review, with the exception of the addition of a new chief technology officer, which followed the divestiture of Newtek Technology Solutions on January 2, 2025. Newtek is an experienced sponsor of asset-backed securities backed by non-guaranteed interests in SBA 7(a) small business loans, with 15 such transactions completed to date and five currently outstanding. As a result of the update, Morningstar DBRS continues to deem the Company an acceptable originator and servicer of small business loan transactions. Separately, U.S. Bank National Association will be the "warm" Backup Servicer on the transaction.

(9) The transaction is supported by an established structure and is consistent with Morningstar DBRS' "Legal Criteria for U.S. Structured Finance" methodology. Legal opinions covering true sale and nonconsolidation will also be provided.

Morningstar DBRS' credit ratings on the Class A, Class B, and Class C Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are Current Interest on the Class A, Class B, and Class C Notes, and Carryforward Interest on the Class A, Class B, and Class C Notes (other than the portion of Carryforward Interest attributable to interest on unpaid Current Interest with respect to the Class A and Class B Notes);; and the Class Principal Amount on the Class A, Class B, and Class C Notes.

Morningstar DBRS' credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, the portion of Carryforward Interest attributable to interest on unpaid Current Interest on the Class A and Class B Notes.

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 factors 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) at 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 Global Methodology for Rating CLOs and Corporate CDOs (November 19, 2024), https://dbrs.morningstar.com/research/443207 and Rating U.S. Structured Finance Transactions (Appendix XVIII: U.S. Small Business) (March 10, 2025), https://dbrs.morningstar.com/research/449616.

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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website (https://dbrs.morningstar.com/understanding-ratings).

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

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.

-- Global Methodology for Rating CLOs and Corporate CDOs and CLO Insight Model v. 1.0.1.4 (November 19, 2024), https://dbrs.morningstar.com/research/443207
-- Operational Risk Assessment for U.S. ABS Originators and Servicers (March 26, 2025), https://dbrs.morningstar.com/research/450709
-- Interest Rate Stresses for U.S. Structured Finance Transactions (March 27, 2025), https://dbrs.morningstar.com/research/450750
-- 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.