DBRS Morningstar Assigns New Rating to Coinstar Funding, LLC, Series 2018-1Other
DBRS, Inc. (DBRS Morningstar) assigned a new rating to the following notes issued by Coinstar Funding, LLC, Series 2018-1:
-- $98,750,000 Series 2018-1, Class A-2 Notes (Class A-2) at BBB (sf)
These notes are currently also rated by DBRS Morningstar’s affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In connection with the ongoing consolidation of DBRS Morningstar and MCR, MCR previously announced that it had placed its outstanding rating of these notes Under Review–Analytical Integration Review and that MCR intended to withdraw its outstanding rating; such withdrawal will occur on January 9, 2020. In accordance with MCR’s engagement letter covering these notes, upon withdrawal of MCR’s outstanding rating, the DBRS Morningstar rating will become the successor rating to the withdrawn MCR rating. Information about the MCR rating, including the history of the MCR rating, can be found at www.morningstarcreditratings.com.
As stated in its December 3, 2019, press release, “DBRS and Morningstar Credit Ratings Confirm U.S. ABS Whole Business Asset Class Coverage,” DBRS Morningstar applied MCR’s “U.S. ABS General Ratings Methodology” to assign the above-listed new rating.
DBRS Morningstar ratings are based on the following analytical considerations:
(1) DBRS Morningstar reviewed the rating analysis performed by MCR on the transaction on or prior to the closing date.
(a) The analysis considered the legal structure of the transaction; the credit quality of Coinstar Funding, LLC (Coinstar); its business position in the industry; potential industry prospects; and the operation of the sponsor.
(b) The rating analysis also included an evaluation of the transaction cash flow using an analytical tool. MCR based its assumptions on the historical performance of the assets and built stress scenarios to simulate adverse business conditions and, in some cases, find the break-even business-reduction rates. The tool altered the cash flow payments according to the various covenant triggers to enforce the proper payment priority. The projected results of the Class A-2 notes demonstrated that the issuer will be able to timely pay interest and ultimate principal by the legal final maturity under stressful scenarios at the assigned rating level.
(2) DBRS Morningstar notes that a legal analysis, including but not limited to legal opinions and various transaction documents, was performed by MCR, which engaged external counsel as part of its process of assigning a new rating to the transaction on or prior to the closing date. For the purpose of assigning a new rating to the transaction, DBRS Morningstar did not perform additional legal analysis unless otherwise indicated in this press release.
(3) DBRS Morningstar did not perform additional operational risk assessments; its analysis relied on MCR’s operational risk assessments performed when assigning a rating to this transaction on or prior to the closing date.
(4) DBRS Morningstar reviewed key transaction performance indicators reported in periodic remittance reports since the transaction’s closing date.
This transaction is secured by most of Coinstar’s revenue-generating assets, including existing and future Coinstar-securitized kiosks, retail partner agreements, international license agreements, coin collections, accounts established for the securitization entities, and intellectual property. The cash flow for the securitization comes from the transaction fees generated by the kiosks after paying the retail partners a portion of this fee.
CASH FLOW ANALYSIS
The key assumptions in the cash flow analysis include the number of U.S. kiosks, average volume per U.S. kiosk, transaction fee rate, retail-partner revenue-sharing rate, international license agreement royalty fee, and stress-scenario revenue-reduction rates. Some of the variable assumptions such as management fees and its related aggregate amount cap are covenants to the indenture.
DBRS Morningstar considered 10 stress scenarios derived for the initial rating that tested the Class A-2 notes and examined sensitivities to the stress scenarios. The Class A-2 notes have an anticipated repayment date in April 2023. Each of the scenarios used the assumption that the notes would not be refinanced and that the transaction would continue after the anticipated repayment date. Each scenario with the annual revenue-reduction rates assumed the decline would continue after the anticipated repayment date. The various scenarios stressed either annual revenue decline or initial revenue decline and results were compared across different scenarios.
All figures are in U.S. dollars unless otherwise noted.
The principal methodology is MCR’s U.S. ABS General Ratings Methodology, which can be found on dbrs.com under Methodologies & Criteria.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.
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