DBRS Morningstar Confirms Ratings on Two Coinstar Funding, LLC ABS Transactions

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the following classes of securities in two Coinstar Funding, LLC, ABS transactions as follows:

-- Coinstar Funding, LLC, Series 2017-1, Class A-1 VFN at BBB (sf)
-- Coinstar Funding, LLC, Series 2017-1, Class A-2 Notes at BBB (sf)
-- Coinstar Funding, LLC, Series 2018-1, Class A-2 Notes at BBB (sf)

DBRS Morningstar based the rating actions on the following analytical considerations:

-- 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: March 2021 Update,” published on March 17, 2021. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, which have been regularly updated. The scenarios were last updated on March 17, 2021, and are reflected in DBRS Morningstar’s rating analysis.

-- The assumptions consider the moderate and adverse macroeconomic scenarios outlined in the commentary, with the moderate scenario serving as the primary anchor for the current ratings. The moderate scenario factors in increasing success in containment during the first half of 2021, enabling the continued relaxation of restrictions.

-- Coin volumes have tracked better overall since the onset of the pandemic with recent monthly data showing continued improvement. Coinstar’s retail partners, which are mostly groceries and supermarkets, were deemed essential businesses by state and local governments. This helped coin volumes recover as customers adapted to coronavirus protocols and resumed using coin kiosks. The surge in coronavirus cases in the second half of 2020 stalled some of the recovery in volumes. Volumes have picked up since the beginning of the year across Coinstar’s network with the backdrop of a ramping vaccine rollout, a general increase in economic activity with relaxed local and state lockdown measures, and the abatement of a coin supply shortage driven by increased production by the U.S Mint. However, volume recovery has slowed after fiscal stimulus checks were issued, which relegated coin exchanges to a lower priority for Coinstar’s core demographic of lower-income households, at least temporarily, thanks to the inflow of this new cash. Longer term, it is expected that this new liquidity will find its way to the system through increased spending, more change in the system, and, ultimately, more coin volume to Coinstar’s network.

-- Kiosk count has remained relatively steady throughout the pandemic, with a slight increase in the number of both domestic and international kiosks. Same-kiosk sales for domestic kiosks have been increasing since the end of Q2 2020 with a significant increase in same-kiosk sales for international kiosks in Q3 2020. These sales plateaued in Q4 2020 as some countries went back into lockdown. As countries relax lockdown measures going forward, the expectation is for same-kiosk sales to increase again.

-- Debt service coverage ratios (DSCRs) and leverage ratios remain in compliance as of the latest quarterly report (Q4 2020).

-- While DBRS Morningstar recognizes the evident recovery in transaction performance, the nature of Coinstar’s business remains susceptible to a resurgence of coronavirus cases, especially with the threat of variants of the virus and the execution risk inherent with a large-scale vaccination rollout. Coin volume recovery could be significantly affected should additional lockdowns and restrictions be imposed in the future. DBRS Morningstar will continue to track key transaction metrics as well as the financial condition of the manager.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
The principal methodology is U.S. ABS General Ratings Methodology (December 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 not 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.dbrsmorningstar.com or contact us at [email protected].

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