DBRS Morningstar Finalizes Provisional Rating on LFS 2021B, LLCOther
DBRS, Inc. (DBRS Morningstar) finalized its provisional rating on the following class of notes issued by LFS 2021B, LLC (the Issuer):
-- $68,250,000 Fixed Rate Asset Backed Notes, Class A at A (sf)
The rating is based on DBRS Morningstar’s review of the following analytical considerations:
-- The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios For Rated Sovereigns,” published on September 8, 2021. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020. The baseline macroeconomic scenarios reflect the view that, although COVID-19 remains a risk to the outlook, uncertainty around the macroeconomic effects of the pandemic has gradually receded. Current median forecasts considered in the baseline macroeconomic scenarios incorporate some risks associated with further outbreaks, but remain fairly positive on recovery prospects given expectations of continued fiscal and monetary policy support. The policy response to COVID-19 may nonetheless bring other risks to the forefront in the coming months and years.
-- While the impact of the coronavirus pandemic has had an adverse effect on the U.S. borrower in general, performance of the underlying receivables in the transaction is expected to remain resilient, because litigation funding receivables and loan receivables are underwritten based on the strength of the case to reach a successful resolution rather than plaintiff's ability to repay. As a result, DBRS Morningstar has not made any material adjustments to its loss expectation for the present transaction solely because of the impact of the coronavirus pandemic.
-- Advances are most often repaid by insurance companies, many of which carry strong ratings. While there is exposure to the insurance industry, DBRS Morningstar does not expect the insurance carrier's ability to pay in the short to medium term to be adversely affected by the economic stress.
-- Transaction capital structure, rating, and sufficiency of available credit enhancement.
-- The full-turbo structural feature.
-- The underwriting and origination capabilities of the Originators.
-- The ability of US Claims Capital, LLC, as Servicer, to make and monitor collections on the collateral pool and other required activities.
-- 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 US Claims Holdings, LLC, the trust has a valid first-priority security interest in the assets, and are consistent with DBRS Morningstar’s “Legal Criteria for U.S. Structured Finance.”
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.
All figures are in U.S. dollars unless otherwise noted.
The principal methodology is U.S. ABS General Ratings Methodology (December 2018), which can be found on dbrsmorningstar.com under Methodologies & Criteria.
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/baseline-macroeconomic-scenarios-application-to-credit-ratings.
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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