Morningstar DBRS Assigns Provisional Credit Ratings to Flagship Credit Auto Trust 2024-1

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes of notes to be issued by Flagship Credit Auto Trust 2024-1 (FCAT 2024-1 or the Issuer):

-- $37,800,000 Class A-1 Notes at R-1 (high) (sf)
-- $145,000,000 Class A-2 Notes at AAA (sf)
-- $34,640,000 Class A-3 Notes at AAA (sf)
-- $37,620,000 Class B Notes at AA (sf)
-- $46,980,000 Class C Notes at A (sf)
-- $33,300,000 Class D Notes at BBB (sf)
-- $11,700,000 Class E Notes at BB (sf)

CREDIT RATING RATIONALE/DESCRIPTION
Transaction capital structure, proposed credit ratings, and form and sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization (OC), subordination, amounts held in the reserve account, and excess spread. Credit enhancement levels are sufficient to support the Morningstar DBRS projected cumulative net loss (CNL) assumption under various stress scenarios.
-- The Morningstar DBRS CNL assumption is 13.25%, based on the expected Cut-Off Date pool composition.
-- The transaction assumptions consider Morningstar DBRS’ baseline macroeconomic scenarios for rated sovereign economies, available in its commentary, “Baseline Macroeconomic Scenarios for Rated Sovereigns March 2024 Update,” published on March 27, 2024. These baseline macroeconomic scenarios replace Morningstar DBRS’ moderate and adverse coronavirus pandemic scenarios, which were first published in April 2020.
-- The consistent operational history of Flagship Credit Acceptance, LLC (Flagship or the Company) and the strength of the overall Company and its management team.
-- The Flagship senior management team has considerable experience and a successful track record within the auto finance industry.
-- The capabilities of Flagship with regard to originations, underwriting, and servicing.
-- Morningstar DBRS performed an operational review of Flagship and considers the entity an acceptable originator and servicer of subprime and nonprime automobile loan contracts with an acceptable backup servicer.
-- The Company indicated it may be subject to various consumer claims and litigation seeking damages and statutory penalties. Some litigation against Flagship could take the form of Class Action complaints by consumers; however, the Company indicated there is no material pending or threatened litigation.
-- The legal structure and presence of legal opinions that will address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with Flagship, that the trust has a valid first-priority security interest in the assets, and the consistency with the Morningstar DBRS “Legal Criteria for U.S. Structured Finance.”
-- Flagship is an independent, full-service automotive financing and servicing company that provides (1) financing to borrowers who do not typically have access to prime credit-lending terms to purchase late-model vehicles and (2) refinancing of existing automotive financing.

This transaction is being structured as a Rule 144A transaction of the Securities Act of 1933. There will be seven classes of Notes—Class A-1, Class A-2, Class A-3 (collectively the Class A Notes), Class B, Class C, Class D, and Class E—included in FCAT 2024-1. Initial credit enhancement for the Class A Notes is expected to be 40.60% and will include a 1.00% reserve account (funded at inception and nondeclining), initial OC of 3.60%, and subordination of 36.00% of the initial pool balance. Initial Class B enhancement is expected to be 30.15% and will include a 1.00% reserve account (funded at inception and nondeclining), initial OC of 3.60%, and subordination of 25.55% of the initial pool balance. Initial Class C enhancement is expected to be 17.10% and will include a 1.00% reserve account (funded at inception and nondeclining), initial OC of 3.60%, and subordination of 12.50% of the initial pool balance. Initial Class D enhancement is expected to be 7.85% and will include a 1.00% reserve account (funded at inception and nondeclining), initial OC of 3.60%, and subordination of 3.25% of the initial pool balance. Initial Class E enhancement is expected to be 4.60% and will include a 1.00% reserve account (funded at inception and nondeclining) and initial OC of 3.60%.

Morningstar DBRS’ credit ratings on the Class A-1, Class A-2, Class A-3, Class B, Class C, Class D, and Class E Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the rated notes are the related Accrued Note Interest and the related Note Balance.

Morningstar DBRS’ credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, The associated contractual payment obligation that is not a financial obligation is the interest on unpaid Accrued Note Interest for each of the rated 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. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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 Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

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

The principal methodology applicable to the credit rating is Rating U.S. Retail Auto Loan Securitizations (May 9, 2023), https://dbrs.morningstar.com/research/413731.

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

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

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

These are solicited credit 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.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Operational Risk Assessment for U.S. ABS Servicers (March 21, 2024), https://dbrs.morningstar.com/research/430003
-- Operational Risk Assessment for U.S. ABS Originators (March 21, 2024), https://dbrs.morningstar.com/research/430004
-- Rating U.S. Structured Finance Transactions (February 22, 2024), https://dbrs.morningstar.com/research/428503
-- Legal Criteria for U.S. Structured Finance (December 7, 2023), https://dbrs.morningstar.com/research/425081

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at [email protected].