DBRS Morningstar Assigns New Rating of AA (sf) to AT&T Receivables Funding, LLC

DBRS, Inc. (DBRS Morningstar) assigned a rating of AA (sf) to the September 24, 2021, Investment (the Investment) and defined yield created under the Second Receivables Purchase Agreement dated September 28, 2017 (the Purchase Agreement as amended to date), among AT&T Receivables Funding, LLC as the Seller; New Cingular Wireless PCS, LLC, doing business as AT&T Mobility, as the Servicer, the pool purchaser agents from time to time, and the pool purchasers from time to time; and Citibank, N.A. (rated AA (low) with a Stable trend by DBRS Morningstar) as the Agent. The Investment was made in an amortizing pool of receivables originated by AT&T Mobility for obligors to finance the purchase of mobile phones and was sold by the Seller under the Purchase Agreement.

The rating is based on DBRS Morningstar’s review of the following analytical considerations:

-- Transaction advance rate, form, and sufficiency of available credit enhancement and the assigned rating. The transaction benefits from (1) credit enhancement in the form of overcollateralization, implied excess spread, and a full turbo structure, in which credit enhancement levels are sufficient to support the DBRS Morningstar expected loss under various stress scenarios, and (2) other benefits provided by the structured Investment, including (a) a discrete pool of assets via specified selection criteria and (b) the application of conservative assumptions in the stress analysis.
-- DBRS Morningstar has performed an operational review of the Servicer of the receivables and considers the entity to be an acceptable servicer of handset loans.
-- DBRS Morningstar was provided sufficient performance data from program-originated contracts.
-- The transaction pool contains high-quality collateral.
-- The legal structure and presence of legal opinions that address the true sale of the assets to the purchasers; the non-consolidation of the special-purpose vehicles with AT&T Receivables Funding, LLC; and that the purchasers have a valid first-priority security interest in the assets and are consistent with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance.”
-- The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios For Rated Sovereigns,” published on September 8, 2021. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020. The baseline macroeconomic scenarios reflect the view that, although the coronavirus remains a risk to the outlook, uncertainty around the macroeconomic effects of the pandemic has gradually receded. Current median forecasts considered in the baseline macroeconomic scenarios incorporate some risks associated with further outbreaks, but remain fairly positive on recovery prospects given expectations of continued fiscal and monetary policy support. The policy response to the coronavirus pandemic may nonetheless bring other risks to the forefront in the coming months and years.
-- The assumptions consider the baseline macroeconomic scenario outlined in the commentary.
-- In consideration of the recent environment as affected by the coronavirus pandemic, DBRS Morningstar notes the following: (1) DBRS Morningstar qualitatively adjusted the assumed cumulative net loss for the transaction above calculated levels to account for potential increased charge-offs; (2) a significant portion of the customer base in the collateral pool is deemed as low risk and such portion may reasonably be assumed to continue to make payments relative to the population at large; and (3) it would be reasonable to expect that utilities and mobile phone bills remain high in consumers’ bill payment priority and that wholesale nonpayment of mobile phone bills would not occur.

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

The principal methodology is Rating U.S. Structured Finance Transactions (November 6, 2020), including Appendix I: U.S. Consumer Loan ABS Transactions, which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

This rating was not initiated at the request of the rated entity.

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

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