DBRS Morningstar Finalizes Provisional Ratings on Flagship Credit Auto Trust 2021-4

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes issued by Flagship Credit Auto Trust 2021-4 (the Issuer):

-- $217,430,000 Class A Notes at AAA (sf)
-- $24,690,000 Class B Notes at AA (sf)
-- $32,770,000 Class C Notes at A (sf)
-- $21,740,000 Class D Notes at BBB (sf)
-- $12,430,000 Class E Notes at BB (sf)

The ratings are based on DBRS Morningstar’s review of the following analytical considerations:

(1) 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 account, and excess spread. Credit enhancement levels are sufficient to support the DBRS Morningstar-projected cumulative net loss (CNL) assumption under various stress scenarios.

(2) The DBRS Morningstar CNL assumption is 11.00% based on the expected Cut-Off Date pool composition.

(3) 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 COVID-19 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 COVID-19 may nonetheless bring other risks to the forefront in the coming months and years.

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

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

(6) 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 performed on the static pool data.

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

(8) 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.”

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

The rating on the Class A Notes reflects 31.00% of initial hard credit enhancement provided by subordinated notes in the pool (29.50%), the reserve account (1.00%), and OC (0.50%). The ratings on the Class B, C, D, and E Notes reflect 23.05%, 12.50%, 5.50%, and 1.50% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

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 in U.S. dollars unless otherwise noted.

The principal methodology is Rating U.S. Retail Auto Loan Securitizations (May 10, 2021), 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.

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

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