DBRS Morningstar Finalizes Provisional Ratings to Flagship Credit Auto Trust 2020-1

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings to the following classes of notes to be issued by Flagship Credit Auto Trust 2020-1 (the Issuer):

-- $233,700,000 Class A Notes at AAA (sf)
-- $31,920,000 Class B Notes at AA (sf)
-- $40,500,000 Class C Notes at A (sf)
-- $32,110,000 Class D Notes at BBB (sf)
-- $16,770,000 Class E Notes at BB (sf)

The ratings are based on a review by DBRS Morningstar of the following analytical considerations:

(1) DBRS Morningstar examined the 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 Morningstar-projected cumulative net loss assumption under various stress scenarios.

(2) The transaction has the ability to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the ratings address the timely payment of interest on a monthly basis and the payment of principal by the legal final maturity date.

(3) Flagship Credit Acceptance, LLC (Flagship or the Company) benefits from its consistent operational history and the strength of the overall Company and its management team.
-- The Flagship senior management team has considerable experience and a successful track record in the auto finance industry.

(4) DBRS Morningstar has performed an operational review of Flagship with regard to originations, underwriting, and servicing and considers the entity an acceptable originator and servicer of subprime automobile loan contracts with an acceptable backup servicer.

(5) DBRS Morningstar exclusively used the static pool approach because Flagship has enough data to generate a sufficient amount of static pool projected losses.
-- DBRS Morningstar was conservative in the loss forecast analysis that was performed on the static pool data.

(6) The Company has indicated that it may be subject to various consumer claims and litigation seeking damages and statutory penalties. Some litigation against the Company could take the form of class action complaints by consumers. However, the Company has indicated that there is no material pending or threatened litigation.

(7) Robert Hurzeler has joined the Company as chief executive officer (CEO) and joined the Company’s board. Hurzeler has over 30 years of experience and most recently served as executive vice president and chief operating officer of OneMain Holdings, Inc. Michael Ritter, the prior CEO, remains with the Company as chairman of the board.

(8) On December 31, 2019, John R. Schwab resigned as chief financial officer (CFO). The Company has begun the search for a replacement CFO.

(9) 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 Flagship, that the trust has a valid first-priority security interest in the assets, and the consistency with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance” methodology.

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 for the purchase of late-model vehicles and (2) refinancing of existing automotive financing.

The rating on the Class A notes reflects the 35.50% of initial hard credit enhancement provided by the subordinated notes in the pool (34.00%), the Reserve Account (1.00%), and OC (0.50%). The ratings on the Class B, C, D, and E notes reflect 26.55%, 15.20%, 6.20%, and 1.50% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

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

The principal methodology is Rating U.S. Retail Auto Loan Securitizations, 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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

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

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