DBRS Morningstar Assigns Provisional Ratings to SESAC Finance, LLC Series 2022-1; Confirms Rating on SESAC Finance, LLC Series 2019-1

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to two classes of notes to be issued by SESAC Finance, LLC Series 2022-1 as follows:

-- $30,000,000 Series 2022-1, Class A-1 Variable Funding Notes at BBB (sf)
-- $240,000,000 Series 2021-1, Class A-2 Notes at BBB (sf)

DBRS Morningstar also confirmed the rating on one class of notes issued by SESAC Finance, LLC Series 2019-1 as follows:
-- $515,425,000 Series 2019-1, Class A-2 Notes at BBB (sf)

The 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 Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020. Despite several new or increasing risks, including the 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.

-- A long history of growth in financial performance, with revenue and profitability consistently growing since 2010.

-- Stable, diverse, and contractual revenue that performed well during the Coronavirus Disease (COVID-19) pandemic. SESAC Group revenue grew 6.5% through the pandemic.

-- An affiliate base comprised of approximately 29,900 songwriters and publishers, which is approximately three times its 2007 level.

--Attractive operating backdrop of the Performance Rights Organization (PRO) Industry. PRO revenues continue to grow in line with growth in the music publishing business driven by the music industry adoption of streaming and digitization.

-- DBRS Morningstar’s operational risk review of SESAC Rights Management Inc. as the Manager.

-- SESAC’s market position as the third-largest PRO in its space and the only for-profit organization among the top three.

-- The structural features of the transaction, such as the interest reserve account, the cash sweep mechanism, and the rapid amortization triggers which help pay down the notional balance of rated notes upon a business deterioration.

-- Legal analysis of the structure; separation of the assets from the operating company, nonconsolidation, and true-sale properties.

-- Cash flow analysis indicates the notes would be repaid under their rating level revenue growth stress scenarios. Day One revenue haircut thresholds for the notes are in line with expectations at the BBB rating level.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance (ESG) factors that had a significant or relevant effect on the credit analysis.

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/396929.

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.

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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