DBRS Morningstar Assigns Provisional Ratings to LFS 2022A, LLC

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of notes to be issued by LFS 2022A, LLC (the Issuer):

-- $83,000,000 Fixed Rate Asset Backed Notes, Class A at A (sf) (the Class A Notes)
-- $4,000,000 Fixed Rate Asset Backed Notes, Class B at BB (sf) (together with the Class A Notes, the Notes)

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

-- The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios For Rated Sovereigns March 2022 Update,” published on March 24, 2022. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse COVID-19 pandemic scenarios, which were first published in April 2020. Despite several new or increasing risks including Russian invasion of Ukraine, rising inflation and new COVID-19 variants, the overall outlook for growth and employment in the United States remains relatively positive.

-- While the ongoing coronavirus pandemic has had an adverse effect on the U.S. borrower in general, performance of the underlying receivables in the transaction is expected to remain resilient, because litigation funding receivables and loan receivables are underwritten based on the strength of the case to reach a successful resolution rather than plaintiff's ability to repay.

-- The ability of the transaction 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 payment of ultimate interest and ultimate principal of the Notes by the Legal Final Payment Date.

-- Advances are most often repaid by insurance companies, many of which carry strong ratings. While there is exposure to the insurance industry, DBRS Morningstar does not expect the insurance carrier's ability to pay in the short to medium term to be adversely affected by the economic stress.

-- The full-turbo feature included in the transaction provides further protection for the Notes.

-- The underwriting and origination capabilities of the Originator.

-- The ability of US Claims Capital, LLC, as Servicer, to make and monitor collections on the collateral pool and other required activities, with an acceptable back-up servicer.

-- Assessment of payment sources.

-- DBRS Morningstar’s expected loss assumption for the worst case pool mix of the underlying collateral is 9.16%, which is based on an analysis of the US Claims Holdings LLC static pool loss data and the Concentration Limits.

-- The credit quality of the collateral.

-- The legal structure and expected presence of legal opinions that address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with US Claims Holdings, LLC, the trust has a valid first-priority security interest in the assets, and are consistent with DBRS Morningstar’s “Legal Criteria for U.S. Structured Finance.”

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 U.S. ABS General Ratings Methodology (March 19, 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.

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

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