DBRS Finalizes Provisional Ratings on Flagship Credit Auto Trust 2016-4

DBRS, Inc. (DBRS) has today finalized its provisional ratings on the following classes issued by Flagship Credit Auto Trust 2016-4:

-- $155,570,000 Series 2016-4, Class A-1 at AAA (sf)
-- $52,590,000 Series 2016-4, Class A-2 at AAA (sf)
-- $41,980,000 Series 2016-4, Class B at AA (sf)
-- $43,370,000 Series 2016-4, Class C at A (sf)
-- $31,750,000 Series 2016-4, Class D at BBB (sf)
-- $14,740,000 Series 2016-4, Class E at BB (sf)

The ratings are based on DBRS’s review of the following analytical considerations:

-- Transaction capital structure, proposed ratings and form and sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization (OC), subordination, amounts held in the reserve fund and excess spread. Credit enhancement levels are sufficient to support the DBRS-projected expected cumulative net loss assumption under various stress scenarios.
-- 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 rating addresses the payment of timely interest on a monthly basis and the payment of principal by the legal final maturity date.
-- The strength of the combined organization after the merger of Flagship Credit Acceptance LLC (Flagship or the Company) and CarFinance Capital LLC.
-- DBRS believes the merger of the two companies provides synergies that make the combined company more financially stable and competitive.
-- The capabilities of Flagship with regard to originations, underwriting and servicing.
-- DBRS has performed an operational review of Flagship and considers the entity to be an acceptable originator and servicer of subprime automobile loan contracts with an acceptable back-up servicer.
-- The Flagship senior management team has considerable experience and a successful track record within the auto finance industry.
-- DBRS used a proxy analysis in its development of an expected loss.
-- A limited amount of performance data was available for the Company’s current originations mix.
-- A combination of Company-provided performance data and industry comparable data was used to determine an expected loss.
-- The legal structure and presence of legal opinions that address the true sale of the assets to the Issuer, the non-consolidation of the special-purpose vehicle with Flagship, that the trust has a valid first-priority security interest in the assets and the consistency with DBRS’s “Legal Criteria for U.S. Structured Finance” methodology.

Flagship is an independent, full-service automotive financing and servicing company that provides financing to borrowers who do not typically have access to prime credit lending terms for the purchase of late-model vehicles and the refinancing of existing automotive financings.

The ratings on the Class A-1 and Class A-2 Notes reflect the 42.00% of initial hard credit enhancement provided by the subordinated notes in the pool (38.00%), the Reserve Account (2.00%) and OC (2.00%). The ratings on the Class B, Class C, Class D and Class E Notes reflect 29.90%, 17.40%, 8.25% and 4.00% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

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

The applicable methodology is Rating U.S. Retail Auto Loan Securitizations, which can be found on our website under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

Please see the attached appendix for additional information regarding sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.