DBRS Morningstar Assigns Ratings to the Class A-R Loans and Class A-T Loans of ABPCIC Funding IV, LLC

DBRS, Inc. (DBRS Morningstar) assigned ratings of AA (sf) to the Class A-R Loans and the Class A-T Loans (together, the Class A Loans) issued by ABPCIC Funding IV, LLC, pursuant to the Credit Agreement dated as of April 21, 2023, among ABPCIC Funding IV, LLC, as Borrower; Natixis, New York Branch, as Administrative Agent; U.S. Bank Trust Company, National Association as Collateral Agent and Collateral Administrator; and the Lenders referred to therein.

The ratings on the Class A Loans address the timely payment of interest up to the Interest Rate Cap (as defined in the Credit Agreement) and the ultimate payment of principal on or before the Stated Maturity (as defined in the Credit Agreement).

RATING RATIONALE
ABPCIC Funding IV, LLC is a cash flow collateralized loan obligation (CLO) transaction. The Class A Loans are collateralized primarily by a portfolio of U.S. middle-market corporate loans and other corporate obligations. ABPCIC Funding IV, LLC is managed by AB Private Credit Investors LLC (ABPCI), an affiliate of AllianceBernstein L.P. DBRS Morningstar considers ABPCI to be an acceptable collateralized loan obligation (CLO) manager. The Reinvestment Period ends on October 21, 2024. The Final Maturity Date is April 21, 2033.

In its analysis, DBRS Morningstar 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 Class A 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 ABPCI.
(6) The legal structure as well as legal opinions addressing certain matters of the Borrower and the consistency with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance” methodology.

The transaction has a dynamic structural configuration that permits variations of certain asset metrics via a selection of an applicable row from a collateral quality matrix (the CQM, as defined in Schedule F of the Credit Agreement). Depending on a given Diversity Score (DScore), the following metrics are selected accordingly from the applicable row of the CQM: DBRS Morningstar Weighted-Average (WA) Risk Score, Advance Rate, Weighted-Average Spread (WAS), Weighted-Average Recovery Rate (WARR), and Overcollateralization Ratio Level. DBRS Morningstar analyzed each structural configuration as a unique transaction, and all configurations (matrix points) passed the applicable DBRS Morningstar rating stress levels. The Coverage Tests and triggers as well as the Collateral Quality Tests that DBRS Morningstar modeled during its analysis are presented below.

(1) Class A Overcollateralization Ratio Test: Subject to CQM; 141.54%
(2) Interest Coverage Ratio Test: 150.00%
(3) Minimum WAS Test: Subject to CQM; 4.75%
(4) Maximum WA Life Test: 6.50
(5) Minimum DScore Test: Subject to CQM; 15
(6) Maximum DBRS Morningstar Risk Score Test: Subject to CQM; 38.00%
(7) Minimum DBRS Morningstar WARR Test: 48.16%
(8) Minimum WA Coupon Test: 7.50%
(9) Maximum Advance Rate: Subject to CQM; 65.0%

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 Collateral Manager’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 may not have public ratings once purchased, and (2) the underlying collateral portfolio may be insufficient to redeem the Class A Loans in an Event of Default.

DBRS Morningstar modeled the transaction using the DBRS Morningstar CLO Asset Model and its proprietary cash flow engine, which incorporated assumptions regarding principal amortization, amount of interest generated, default timings, and recovery rates, among other credit considerations referenced in the DBRS Morningstar rating methodology “Cash Flow Assumptions for Corporate Credit Securitizations.” Model-based analysis produced satisfactory results that supported the assignment of the ratings on the Class A Loans.

Considering the transaction structure, its legal aspects, and the results produced by the models, DBRS Morningstar assigned the ratings above on the Class A Loans issued by ABPCIC Funding IV, LLC.

To assess portfolio credit quality, DBRS Morningstar provides a credit estimate or internal assessment for each nonfinancial corporate obligor in the portfolio not rated by DBRS Morningstar. Credit estimates are not ratings; rather, they represent a model-driven default probability for each obligor that DBRS Morningstar uses when rating the Class A Loans.

The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: December 2022 Update” (https://www.dbrsmorningstar.com/research/407678), published on December 21, 2022. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.

For more information regarding DBRS Morningstar’s additional adjustment for select industries related to the coronavirus, please see its May 18, 2020, commentary, “CLO Risk Exposure to the Coronavirus Disease (COVID-19)”: https://www.dbrsmorningstar.com/research/361112.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at (May 17, 2022) https://www.dbrsmorningstar.com/research/396929.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies applicable to the credit ratings are Rating CLOs and CDOs of Large Corporate Credit (February 7, 2023; www.dbrsmorningstar.com/research/409498) and Cash Flow Assumptions for Corporate Credit Securitizations (February 7, 2023; www.dbrsmorningstar.com/research/409499).

Other methodologies referenced in this transaction are listed at the end of this press release.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

The rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

DBRS, Inc.
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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Rating CLOs and CDOs of Large Corporate Credit and DBRS Morningstar CLO Asset Model Version 2.3.1 (February 7, 2023)
www.dbrsmorningstar.com/research/409498

-- Cash Flow Assumptions for Corporate Credit Securitizations (February 7, 2023)
www.dbrsmorningstar.com/research/409499

-- Legal Criteria for U.S. Structured Finance (December 7, 2022)
https://www.dbrsmorningstar.com/research/407008

-- Operational Risk Assessment for Collateralized Loan Obligation (CLO) and Collateralized Debt Obligation (CDO) Managers of Large Corporate Credits (September 23, 2022)
https://www.dbrsmorningstar.com/research/403042

-- Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022)
https://www.dbrsmorningstar.com/research/402153

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.