DBRS Morningstar Assigns New Ratings to DRB Capital Securitization, Series 2018-A

DBRS, Inc. (DBRS Morningstar) assigned ratings to the following notes issued by DRB Capital Securitization, Series 2018-A:

-- $83,989,846 Class A Notes (Class A) rated AAA (sf)
-- $3,500,000 Class B Notes (Class B) rated A (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 ratings of these notes Under Review–Analytical Integration Review and that MCR intended to withdraw its outstanding ratings; such withdrawal will occur on January 9, 2020. In accordance with MCR’s engagement letter covering these notes, upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings. Information about the MCR ratings, including the history of the MCR ratings, can be found at www.morningstarcreditratings.com.

As stated in the December 19, 2019, press release, “DBRS and Morningstar Credit Ratings Confirm U.S. ABS Structured Settlements (Mixed Pools) Asset Class Coverage,” DBRS Morningstar applied MCR’s “U.S. ABS General Ratings Methodology” to assign the above-listed new ratings.

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 the annuity and life insurance policy providers in the collateral pool, considerations related to the occurrence of mortality events, and the operation of the sponsor.
(b) The rating analysis also included an evaluation of the transaction cash flow using an analytical tool and cash flow engine. MCR based its assumptions on the credit quality of annuities and guaranteed and life-contingent structured settlement receivables and the exposure to mortality risk and built stress scenarios to simulate adverse changes in collateral and test sensitivity to further-reduced recovery rates and extended recovery lag. The engine altered the cash flow payments according to the covenant triggers to enforce the proper payment priority. The ratings listed above address timely payment of scheduled interest on the Class A notes and the ultimate payment of interest on the Class B notes as well as the ultimate payment of principal on the above-referenced notes in accordance with the transaction documents.

(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 new ratings to the transaction on or prior to the closing date. For the purpose of assigning new ratings 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 ratings 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.

COLLATERAL
The transaction is backed by a pool of structured settlement and annuity receivables. The receivables fall in the following three categories: guaranteed, unhedged, and hedged. Hedged and unhedged settlements are subject to mortality risk, and guaranteed agreements do not have a mortality risk associated with them. The hedged structured settlement receivables have associated life insurance policies that partially offset the mortality risk. The insurance company that provides the life insurance policies may be different from the insurance company that provides annuity payments.

CASH FLOW ANALYSIS
A cash flow tool was used to simulate future cash flows for receivables in the collateral pool under a number of scenarios consisting of various rating-specific stresses. The analysis focused on the probability of the insurance company defaulting and mortality probability, which is associated only with the life-contingent agreements. The mortality tables published by the Centers for Disease Control and Prevention as well as mortality adjustment factors provided by Fasano Associates were used to simulate the mortality events with respect to life-contingent collateral.

STRESS SCENARIOS
DBRS Morningstar considered rating-specific scenarios where default probabilities for the insurance companies were stressed, which were based on the estimate of their ratings. Once defaulted, the subsequent monthly cash flows, or death benefits, were assumed to recover after 12 months at a recovery rate of 70% for investment-grade-rated companies and 50% for noninvestment-grade-rated companies. The analysis also considered rating-specific mortality multiples, which were used to further increase mortality probabilities. Sensitivity scenarios tested the ability of the transaction to withstand additional haircuts to recovery rates and extended recovery lag. An additional 1.0% haircut was applied to monthly cash flows before any payments made through the waterfall to address the risk of delayed or lost payments.

Notes:
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.

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

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