Morningstar DBRS Finalizes Provisional Credit Ratings on PRPM 2024-RPL1, LLC

DBRS, Inc. (Morningstar DBRS) finalized the following provisional credit ratings on PRPM 2024-RPL1, Mortgage-Backed Notes, Series 2024-RPL1 (the Notes) issued by PRPM 2024-RPL1, LLC (the Issuer):

-- $156.0 million Class A-1 at AAA (sf)
-- $18.7 million Class A-2 at AA (sf)
-- $14.4 million Class A-3 at A (sf)
-- $11.8 million Class M-1 at BBB (sf)
-- $26.2 million Class B-1 at BB (sf)

The AAA (sf) credit rating on the Class A-1 Notes reflects 36.60% of credit enhancement provided by subordinated notes. The AA (sf), A (sf), BBB (sf), and BB (sf) credit ratings reflect 29.00%, 23.15%, 18.35%, and 7.70% of credit enhancement, respectively.

Other than the specified classes above, Morningstar DBRS does not rate any other classes of Notes in this transaction.

This transaction is a securitization of a portfolio of seasoned performing and reperforming first-lien residential mortgages funded by the issuance of mortgage-backed securities (the Notes). The Notes are backed by 1,412 loans with a total principal balance of $246,078,965, as of the Cut-Off Date (January 31, 2024).

The mortgage loans are approximately 176 months seasoned. As of the Cut-Off Date, 85.8% of the loans are current under the Mortgage Bankers Association (MBA) delinquency method, including 179 (12.4% of the loans) bankruptcy-performing loans. Below is the current delinquency status distribution for this pool.

Although the number of months clean (consecutively zero times 30 (0 x 30) days delinquent) at issuance is weaker relative to some other Morningstar DBRS-rated seasoned transactions, the borrowers in this pool demonstrate reasonable cash flow velocity (as by number of payments over time) in the past 12 months. Over the past 12 months, 1,275 loans, or 90.0%, have made six or more payments, and 1,263 loans, or 87.7%, have made 12 or more payments.

Modified loans make up 74.6% of the portfolio. The modifications happened more than two years ago for 88.8% of the modified loans. Within the pool, 488 mortgages (34.6% of the pool by loan count) have a total non-interest-bearing deferred amount of $18,736,821, which equates to approximately 7.6% of the total principal balance.

To satisfy the credit risk retention requirements, as of the Closing Date, the Sponsor or a majority-owned affiliate of the Sponsors will hold the Class XS, Class B-3, and Class B-2 Notes and a requisite amount of the Class B-1 Notes.

Following the transfer of servicing of 5.3% of the mortgage loans to SN Servicing Corporation (SNSC) from Nationstar Mortgage LLC (dba) Mr. Cooper on or before 45 days following the closing date, SNSC will service all the loans in this transaction. The Servicer will not advance any delinquent principal and interest (P&I) on the mortgages; however, the Servicer is obligated to make advances in respect of prior liens, insurance, real estate taxes, and assessments as well as reasonable costs and expenses incurred in the course of servicing and disposing of properties.

The Issuer has the option to redeem the Notes in full at a price equal to the sum of (1) the remaining aggregate Note Amount of the Notes; (2) any accrued and unpaid interest due on the Notes through the redemption date (including any Interest Shortfalls and Net WAC Cap Carryover); and (3) accrued and unpaid Step-Up Interest Payment Amount; (4) any fees and expenses of the transaction parties, including any unreimbursed servicing advances (Redemption Price). Such Optional Redemption may be exercised on any date on or after the earlier of (i) the Payment Date occurring in February 2026 or (ii) the date on which the aggregate Unpaid Principal Balance of the Mortgage Loans is less than or equal to 30% of the aggregate Unpaid Principal Balance of the Mortgage Loans as of the Cut-off Date.

The Asset Manager is required to conduct a mandatory auction if the Notes have not been redeemed by the Issuer or otherwise paid in full by the payment date in January 2029 at a minimum auction price that covers the aggregate note balances, any accrued and unpaid interest (including any cap carryover), any servicing advances, and any outstanding fees, expenses, and indemnities of all the transaction parties. If the amount of the auction proceeds to be received would be less than the minimum auction price, payments on the Notes would be made by the Indenture Trustee on such payment date and subsequent payment dates in accordance with the priority of payments.

Notwithstanding the above, if the Asset Manager receives a maximum bid that is equal to the sum of (i) the rated Notes, any accrued and unpaid interest thereon at the applicable Note Rates (including any Net WAC Cap Carryover) and any outstanding fees, expenses, and indemnities (without regard to the Annual Cap) of the transaction parties, including any unreimbursed Servicing Advances and (ii) the fees and expenses of the Asset Manager and the Auction Agent, the holders of the Class B-2, Class B-3, and Class XS Notes can submit their Notes to the Paying Agent for cancellation without payment.

The transaction employs a sequential-pay cash flow structure with interest payment amount and interest shortfalls paid sequentially to all Notes, except for the Class B-3 Notes, which will have a zero coupon prior to the payment in February 2028 (Expected Redemption Date). Following the Expected Redemption Date, any Net WAC cap carryover of the Class A-1 Notes will be paid from interest payment and interest shortfall amounts due to the Class B-3 Notes that have been diverted to Net WAC Cap Carryover Reserve Account. Principal can be used to pay interest on all Notes after the Class A-1 and Class A-2 Notes have been paid to zero.

Monthly Excess Cash flow can be used to cover realized losses before being allocated to unpaid Cap Carryover Amounts due to Class A-1, and can be used to turbo down the Notes. For this transaction, the Class A-1 fixed rates step up by 100 basis points on and after the payment date in February 2028. On each Payment Date for so long as the Net WAC Cap Carryover on the Class A-1 Notes is greater than zero, interest and principal otherwise payable to the Class B-3 may also be used to pay Cap Carryover Amounts.

The cash flow structure is discussed in more detail in the Cash Flow Structure and Features section of related report.

The credit ratings reflect transactional strengths that include the following:
-- Relatively strong loan-to-value ratios (LTVs);
-- Satisfactory third-party due-diligence review;
-- Representations and warranties framework;
-- Structural Features; and
-- Seasoning.

The transaction also includes the following challenges:
-- No Servicer Advances of Delinquent P&I;
-- Assignments and Endorsements.

The full description of the strengths, challenges, and mitigating factors is detailed in the related report.

Morningstar DBRS’ credit ratings on the Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are listed at the end of this Press Release. The associated financial obligations for each of the rated Notes are the related interest payment amount, any interest shortfalls, and the related note amount.

Morningstar DBRS’ credit rating on the Class A-1 Notes also addresses the credit risk associated with the increased rate of interest applicable to these Notes if they’re not redeemed on the Expected Redemption Date (February 2028) in accordance with the applicable transaction documents.

Morningstar DBRS’ credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, in this transaction, Morningstar DBRS ratings do not address the payment of any Net WAC cap carryover amounts.

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, AND GOVERNANCE CONSIDERATIONS

Environmental (E) Factors
There were no Environmental factor(s) that had a relevant or significant effect on the credit analysis.

Social (S) Factors
There were no Social factor(s) that had a relevant or significant effect on the credit analysis.

Governance (G) Factors
There were no Governance factor(s) that had a relevant or significant 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 (23 January 2024) https://dbrs.morningstar.com/research/427030.

Notes:
All figures are in US Dollars unless otherwise noted.

The principal methodology applicable to the credit ratings is RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology (31 August 2023) https://dbrs.morningstar.com/research/420108/rmbs-insight-1.3:-u.s.-residential-mortgage-backed-securities-model-and-rating-methodology

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

The Morningstar DBRS Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. Morningstar DBRS analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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
Tel. +1 212 806-3277

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Assessing U.S. RMBS Pools Under the Ability-to-Repay Rules (April 28, 2023),
https://www.dbrsmorningstar.com/research/413297
-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023), https://www.dbrsmorningstar.com/research/415687
-- Third-Party Due-Diligence Criteria for U.S. RMBS Transactions (September 8, 2023), https://www.dbrsmorningstar.com/research/420333
-- Representations and Warranties Criteria for U.S. RMBS Transactions (May 16, 2023), https://www.dbrsmorningstar.com/research/414076
-- Legal Criteria for U.S. Structured Finance (December 7, 2023), https://www.dbrsmorningstar.com/research/425081
-- Operational Risk Assessment for U.S. RMBS Originators (August 31, 2023), https://www.dbrsmorningstar.com/research/420106
-- Operational Risk Assessment for U.S. RMBS Servicers (August 31, 2023), https://www.dbrsmorningstar.com/research/420107

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.