DBRS Morningstar Downgrades and Discontinues Ratings on the Lendmark Funding Trust 2018-A Facility

DBRS, Inc. (DBRS Morningstar) downgraded the rating on the Series 2018-A Class B Advance facility issued by Lendmark Funding Trust 2018-A (the Issuer) to BBB (sf) from A (sf).

In addition, DBRS Morningstar discontinued and withdrew the rating on the Series 2018-A Class C Advance.

The ratings are based upon a review by DBRS Morningstar of the following analytical considerations:
--The transaction assumptions consider DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the coronavirus, available in its commentary “Global Macroeconomic Scenarios - June 2021 Update,” published on June 18, 2021. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, that have been regularly updated. The scenarios were last updated on June 18, 2021, and are reflected in DBRS Morningstar’s rating analysis. The assumptions consider the moderate macroeconomic scenario outlined in the commentary, with the moderate scenario serving as the primary anchor for current ratings. The moderate scenario factors in continued success in containment of the coronavirus pandemic during the second half of 2021, enabling the continued relaxation of restrictions.
-- Transaction capital structure, proposed ratings, and form and sufficiency of available credit enhancement.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the ratings addresses the payment of timely interest on a monthly basis and principal by the stated legal maturity date.
-- Lendmark Financial Services LLC’s (Lendmark) capabilities with regard to originations, underwriting, and servicing.
-- The credit quality of the collateral and the performance of Lendmark’s consumer loan portfolio. DBRS Morningstar has used a hybrid approach in analyzing the Lendmark portfolio that incorporates elements of static pool analysis employed for assets, such as consumer loans and revolving asset analysis, employed for such assets as credit card master trusts.
-- DBRS Morningstar applied a finance yield haircut of 6.0% to the Class B Advance. While this haircut is lower than the range described in the “Rating U.S. Credit Card Asset-Backed Securities” methodology, the fixed-rate nature of the underlying loans, lack of interchange fees, and historical yield consistency support these stressed assumptions.
-- DBRS Morningstar applied charge-off multiples of 2.89 times to the Class B Advance.
-- The legal structure and presence of legal opinions that address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with Lendmark, that the trust has a valid first-priority security interest in the assets and is consistent with the DBRS Morningstar methodology “Legal Criteria for U.S. Structured Finance.”

ESG CONSIDERATIONS
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 https://www.dbrsmorningstar.com/research/373262.

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

The principal methodologies are Rating U.S. Structured Finance Transactions (November 6, 2020) and Rating U.S. Credit Card Asset-Backed Securities (August 7, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.

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

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