DBRS Morningstar Assigns Provisional Ratings to Vine 2020-1

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following notes to be issued by Vine 2020-1:

-- $384,300,000 Class A at A (sf)
-- $21,200,000 Class B at BBB (sf)
-- $16,000,000 Class C at BB (sf)

The ratings are based on DBRS Morningstar’s review of the following analytical considerations:
-- Transaction capital structure, proposed ratings, and form and sufficiency of available credit enhancement.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay timely interest on a quarterly basis and principal by the final maturity date.
-- The transaction assumptions consider DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the Coronavirus Disease (COVID-19), available in its commentary “Global Macroeconomic Scenarios: September Update,” published on September 10, 2020. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, and they have been regularly updated. The scenarios were last updated on September 10, 2020, and are reflected in DBRS Morningstar’s rating analysis. The assumptions consider the moderate macroeconomic scenario outlined in the commentary, with the moderate scenario serving as the primary anchor for current ratings. The moderate scenario remains predicated on a more rapid return of confidence and a steady recovery heading into 2021. Given the nature of the assets supporting this transaction, the impact of the coronavirus pandemic has limited impact on the transaction. DBRS Morningstar does not believe that additional stresses are warranted in the cash flow analysis at this time. The stresses applied and certain characteristics of the underlying distribution agreements provide ample credit protection against current coronavirus projections.
-- The transaction parties’ capabilities in the film rights exploitation space.
-- The operational history of Village Roadshow Entertainment Group (VREG) and the strength of the overall company and its management team.
-- The assets supporting this transaction are a combination of the existing film library from VREG and the Virtual film library. The transaction benefits from perpetual revenue generated from the exploitation of the titles across various media platforms and merchandising.
-- The film library includes titles with strong franchise value including those related to the very successful Matrix, Ocean's, Joker, and Sherlock Holmes franchises.
-- Because this is a film library transaction, there is no production risk in the portfolios. All films have been released and are through their theatrical windows.
-- The revenue generated by the film library depends on the successful exploitation of the film titles, which is driven by the distribution of the films across various platforms. Each film benefits from distribution agreements with subsidiaries of Warner Bros. Entertainment Inc. (Warner Bros.), Sony Pictures Entertainment Inc. (Sony Pictures), Paramount Pictures Corporation, and New Regency Enterprises USA, Inc. Additionally, the studios will make advances for expenses incurred to distribute the films. Therefore, the transaction heavily relies on the performance of the distributors.
-- The library has received an independent valuation by FTI Consulting, which has considerable expertise in valuing film libraries. The company will provide appraisals annually and upon the occurrence of certain events, including (1) the occurrence of any Early Amortization Event, (2) the occurrence of any Series Cash Trap Event, (3) the occurrence of any Event of Default, and (4) the occurrence of any Servicer Termination Event.
-- The occurrence of a bankruptcy of Warner Bros. or Sony Pictures.
-- In addition to the issuance of Series 2020-1, the Group A Co-Issuers have incurred subordinated intercompany debt that will survive the rated issuance. The subordinated debt is approximately $550 million as of the Series 2020-1 Closing Date.
-- The existence of piracy risk, which is an inherent part of film transactions. Studios have worked to combat and mitigate this risk through the use of technology to help impede the copying process and working with technology firms and platforms to reduce the risk of illegal downloading.
-- VREG will act as the Servicer for the transaction. The servicing function requires minimal activity beyond administering cash flows, which has been a long-standing part of VREG's day-to-day business, and the company has been co-financing and co-producing films since 1997 with strong servicing capabilities demonstrated to date.
-- Vine Investment Advisors LP (Vine) will act as the Backup Servicer for the transaction. The company has extensive experience in the film industry dating back to 2007 and has experience working with various major studios. Furthermore, the servicing infrastructure is easy to replicate and easily transferrable.
-- The investment funds controlled by Vine are the majority shareholder of VREG. VREG is only one investment of Vine’s total portfolio; as such, VREG does not solely rely on the performance of the portfolio company.
-- Additional series may be issued; however, the transaction has the benefit of group- and series-level early amortization as well as debt service coverage ratio amortization events.
-- The historical performance and anticipated future revenue stream of the film library.
-- The legal structure and presence of legal opinions, which will address the true sale of the assets to the Co-Issuers, the nonconsolidation of the special-purpose vehicle with VREG, 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.”

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

The principal methodology is Rating U.S. Film Rights Securitizations (September 27, 2018), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.

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.dbrsmorningstar.com or contact us at [email protected].

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