DBRS Morningstar Requests Comments on U.S. Consumer Litigation Finance Appendices

DBRS Morningstar is requesting comments on the proposed material updates to the following methodologies (RFC Methodologies) to be used to determine credit ratings in the U.S. Consumer Litigation Finance (CLF) asset class:
-- Rating U.S. Structured Finance Transactions methodology—U.S. Consumer Litigation Finance (CLF New Issue Appendix);
-- Operational Risk Assessment for U.S. ABS Originators methodology—U.S Consumer Litigation Finance (CLF Originators Exhibit);
-- Operational Risk Assessment for U.S. ABS Servicers methodology—U.S. Consumer Litigation Finance (CLF Servicers Exhibit); and
-- Master U.S. ABS Surveillance methodology—U.S. Consumer Litigation Finance (CLF Surveillance Appendix).

Upon the close of the Request for Comment period, the above-referenced RFC Methodologies may supersede the U.S. ABS General Ratings Methodology (December 2018) (General Ratings Methodology) in respect of the U.S. Litigation Finance asset class. DBRS Morningstar, upon the finalization of the RFC Methodologies, will refer to the U.S. Litigation Finance asset class as Consumer Litigation Finance. Please refer to the end of the press release for Additional Disclosures.

CLF NEW ISSUE APPENDIX
Please refer to the CLF New Issue Appendix to the Rating U.S. Structured Finance Transactions methodology, which presents the principal asset class methodology that DBRS Morningstar intends to apply to assign new credit ratings in the CLF asset class following the finalization of the RFC Methodologies. The CLF New Issue Appendix provides a discussion of the key analytical and credit considerations, collateral quality and metrics, legal and regulatory considerations, and cash flow analysis applicable to DBRS Morningstar’s analysis of CLF asset class transactions.

Under the proposed CLF New Issue Appendix, DBRS Morningstar incorporates key methodology updates that include determining an expected cash flow vector and stressed cash flow vectors for different rating levels. The expected cash flow is determined based on historical vintage performance for similar assets. The stresses, in the form of haircuts, are determined based on the variability in the same historical vintage data. Cash flow analysis is performed to determine whether the stressed cash flow vectors, given the transaction structure, are adequate to make payments on the rated debt.

CLF ORIGINATORS EXHIBIT AND CLF SERVICERS EXHIBIT
Please refer to the CLF Originators Exhibit to the Operational Risk Assessment for U.S. ABS Originators methodology and CLF Servicers Exhibit to the Operational Risk Assessment for U.S. ABS Servicers methodology that formalize the sample list of questions DBRS Morningstar expects to use in the operational risk reviews of originators and servicers operating in the CLF asset class upon the finalization of the RFC Methodologies.

CLF SURVEILLANCE APPENDIX
Please refer to the CLF Surveillance Appendix to the Master U.S. ABS Surveillance methodology which presents the criteria that DBRS Morningstar intends to apply in connection with the surveillance of new DBRS Morningstar credit ratings in the CLF asset class following the finalization of the RFC Methodologies.

DBRS Morningstar deems the updates to the RFC Methodologies to be material as the CLF New Issue and CLF Surveillance Appendices set forth updated approaches with the addition of a formalized new CLF Originators Exhibit and CLF Servicers Exhibit. DBRS Morningstar will apply the CLF New Issue and CLF Surveillance Appendices in addition to the CLF Originators and CLF Servicers Exhibits to outstanding credit ratings through the surveillance process.

DBRS Morningstar currently rates 11 classes of notes across eight publicly rated U.S. Consumer Litigation Finance transactions. While no downgrades are expected as a result of these changes, DBRS Morningstar expects outstanding classes to have a combination of confirmations and upgrades if the methodology is finalized in its current proposal. The potentially impacted public credit ratings in the CLF asset class include:
-- LFS 2020A, LLC, Fixed Rate Asset Backed Notes, A (sf)
-- LFS 2021A, LLC, Fixed Rate Asset Backed Notes, Class A, A (sf)
-- LFS 2021B, LLC, Fixed Rate Asset Backed Notes, Class A, A (sf)
-- LFS 2022A, LLC, Fixed Rate Asset Backed Notes, Class A, A (sf)
-- LFS 2022A, LLC, Fixed Rate Asset Backed Notes, Class B, BB (sf)
-- Oasis 2021-1 LLC, Fixed Rate Asset Backed Notes, A (low) (sf)
-- Oasis 2021-2 LLC, Class A Fixed Rate Asset Backed Notes, A (low) (sf)
-- Oasis 2021-2 LLC, Class B Fixed Rate Asset Backed Notes, BB (sf)
-- Libra Solutions 2022-1 LLC, Fixed Rate Asset Backed Notes, A (low) (sf)
-- Libra Solutions 2022-2 LLC, Class A Fixed Rate Asset Backed Notes, A (low) (sf)
-- Libra Solutions 2022-2 LLC, Class B Fixed Rate Asset Backed Notes, BB (sf)

ADDITIONAL DISCLOSURES
As disclosed in the Notice Regarding the Analytical Integration of DBRS and Morningstar Credit Ratings (Integration Notice) accompanying the General Ratings Methodology, DBRS Morningstar has applied the General Ratings Methodology, effective January 24, 2020, in connection with assigning of new DBRS Morningstar credit ratings, and monitoring outstanding DBRS Morningstar credit ratings, in this asset class (see the following press release for more details: https://www.dbrsmorningstar.com/research/355828). In connection with the finalization of the RFC Methodologies, the Integration Notice will be updated to remove the reference to the U.S. Litigation Finance asset class, and the General Ratings Methodology will remain in use in respect of the asset classes referenced in the Integration Notice, as updated.

Comments should be received on or before October 28, 2022. Please submit your comments to the following email address:
sfcomments@dbrsmorningstar.com

DBRS Morningstar publishes on its website all comments received, except in cases where confidentiality is requested by the respondent.

Notes:
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/402907.

DBRS Morningstar methodologies are publicly available on its website www.dbrsmorningstar.com under Methodologies & Criteria.

For more information on this methodology or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.