Morningstar DBRS Finalizes Provisional Ratings on SESAC Finance, LLC Series 2024-1 Class A-2 Notes; Confirms Rating on Series 2022-1 Class A-1 Notes and A-2 Notes, and Series 2019-1 Class A-2 Notes

DBRS, Inc. (Morningstar DBRS) finalized a provisional credit rating on one class of notes to be issued by SESAC Finance, LLC Series 2024-1 as follows:

-- $180,000,000 Series 2024-1, Class A-2 Notes at BBB (sf)

Morningstar DBRS also confirmed the ratings on two classes of notes 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)
-- $236,400,000 Series 2022-1, Class A-2 Notes at BBB (sf)

Morningstar DBRS also confirmed the rating on one class of notes issued by SESAC Finance, LLC Series 2019-1 as follows:

-- $506,150,000 Series 2019-1, Class A-2 Notes at BBB (sf)

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

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

-- Favorable tailwinds to support SESAC’s continued growth in performance, driven largely by growth in digital streaming and other related platforms.

-- A diverse and optimized affiliate base comprised of approximately 23,400 songwriters and publishers (according to SESAC Group as of September 30, 2023), with margin improvement and scale maintained, along with a high retention rate among key contributing Affiliates.

--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.

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

-- SESAC’s market position as the third-largest PRO in its space.

-- 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.

-- Breakeven cash flow haircut thresholds for the notes in line with expectations at the BBB rating level.

-- The transaction assumptions consider Morningstar DBRS’ baseline macroeconomic scenarios for rated sovereign economies, available in its commentary "Baseline Macroeconomic Scenarios for Rated Sovereigns: December 2023 Update," published on December 19, 2023. These baseline macroeconomic scenarios replace Morningstar DBRS' moderate and adverse COVID-19 pandemic scenarios, which were first published in April 2020.

Morningstar DBRS’ credit rating on the securities referenced herein addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Interest Payment and the related Principal Balance.

Morningstar DBRS’ credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. The associated contractual payment obligations that are not financial obligations for each of the rated notes are the interest on any Unpaid Interest Payment, Post-Anticipated Repayment Date Contingent Interest, and principal Prepayment Amount.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

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

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030 (January 23, 2024).

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating U.S. Structured Finance Transactions Appendix XV: U.S. Whole Business Securitizations (October 30, 2023), which can be found at: https://dbrs.morningstar.com/research/422592

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS, Inc.
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New York, NY 10005 USA
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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies

Operational Risk Assessment for U.S. ABS Servicers (July 20, 2023),
https://dbrs.morningstar.com/research/417415

Operational Risk Assessment for U.S. ABS Originators (July 20, 2023),
https://dbrs.morningstar.com/research/417416

Legal Criteria for U.S. Structured Finance (December 7, 2023)
https://dbrs.morningstar.com/research/425081

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