DBRS Morningstar Finalizes Provisional Ratings on Flagship Credit Auto Trust 2022-4

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes issued by Flagship Credit Auto Trust 2022-4 (FCAT 2022-4 or the Issuer):

-- $48,200,000 Class A-1 Notes at R-1 (high) (sf)
-- $165,000,000 Class A-2 Notes at AAA (sf)
-- $52,660,000 Class A-3 Notes at AAA (sf)
-- $28,140,000 Class B Notes at AA (sf)
-- $45,780,000 Class C Notes at A (sf)
-- $25,620,000 Class D Notes at BBB (sf)
-- $35,700,000 Class E Notes at BB (sf)

The final 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 10.15%, 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: September 2022 Update,” published on September 19, 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.

(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) The Company indicated 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 there is no material pending or threatened litigation.

(7) The legal structure and presence of legal opinions that will 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.

There are seven classes of Notes included in FCAT 2022-4. Initial credit enhancement for the Class A-1, A-2, and A-3 Notes is expected to be 37.70% and includes a 1.00% reserve account (funded at inception and nondeclining), initial OC of 4.50%, and subordination of 32.20% of the initial pool balance. Initial Class B enhancement is expected to be 31.00% and includes a 1.00% reserve account (funded at inception and nondeclining), initial OC of 4.50%, and subordination of 25.50% of the initial pool balance. Initial Class C enhancement is expected to be 20.10% and includes a 1.00% reserve account (funded at inception and nondeclining), initial OC of 4.50%, and subordination of 14.60% of the initial pool balance. Initial Class D enhancement is expected to be 14.00% and includes a 1.00% reserve account (funded at inception and nondeclining), initial OC of 4.50%, and subordination of 8.50% of the initial pool balance. Initial Class E enhancement is expected to be 5.50% and includes a 1.00% reserve account (funded at inception and nondeclining) and initial OC of 4.50%.

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. (May 17, 2022)

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, 2022), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

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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