Morningstar DBRS Takes Credit Rating Actions on Flagship Credit Auto Trust

DBRS, Inc. (Morningstar DBRS) upgraded one credit rating, confirmed 37 credit ratings, and placed one credit rating Under Review with Negative Implications from seven Flagship Credit Auto Trust transactions.

The credit rating actions are based on the following analytical considerations:

-- The transaction assumptions consider Morningstar DBRS’ baseline macroeconomic scenarios for rated sovereign economies, available in its commentary, “Baseline Macroeconomic Scenarios for Rated Sovereigns March 2024 Update,” published on March 27, 2024. These baseline macroeconomic scenarios replace Morningstar DBRS’ moderate and adverse coronavirus pandemic scenarios, which were first published in April 2020.

-- The collateral performance to date and Morningstar DBRS’ assessment of future performance.

-- For Flagship Credit Auto Trust 2022-1, Flagship Credit Auto Trust 2022-3, Flagship Credit Auto Trust 2022-4, Flagship Credit Auto Trust 2023-1, Flagship Credit Auto Trust 2023-2, and Flagship Credit Auto Trust 2023-3, although losses are tracking above the Morningstar DBRS initial base-case CNL expectations, the current level of hard CE and estimated excess spread are sufficient to support the Morningstar DBRS projected remaining CNL assumption at a multiple of coverage commensurate with the credit ratings.

-- As of the March 2024 payment date, Flagship Credit Auto Trust 2022-2 has amortized to a pool factor of 51.68% and has a current cumulative net loss (CNL) to date of 11.85%. Current CNL is tracking above Morningstar DBRS’ initial base-case loss expectation of 10.60%.

-- Because of weaker-than-expected performance, Morningstar DBRS has revised the base-case loss expectation for Flagship Credit Auto Trust 2022-2 to 19.00%. As a result, the current level of hard credit enhancement (CE) and estimated excess spread may be insufficient to support the current credit rating on the Class E Notes. Consequently, Morningstar DBRS has placed the current credit rating on the aforementioned class Under Review with Negative Implications. While CNL is tracking above initial expectation, the Class A Notes, the Class B Notes, the Class C Notes and the Class D Notes have benefited from deleveraging and have sufficient CE commensurate with the current credit ratings, and Morningstar DBRS has confirmed the credit ratings on these classes.

-- As of the March 2024 payment date, Flagship Credit Auto Trust 2022-2 has a current OC amount of 1.42% relative to the target of 7.25% of the outstanding receivables balance. Additionally, the transaction was structured to include a fully funded non-declining reserve account (RA) of 1.05% of the initial aggregate pool balance. As the transaction amortizes, the RA percentage will increase as it will represent a larger portion of available CE.

-- The transaction parties’ capabilities with regard to originating, underwriting, and servicing.

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 for each of the rated notes are the related Accrued Note Interest and the related Note 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 obligation that is not a financial obligation is the interest on unpaid Accrued Note Interest for each of the rated notes.

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
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:
The principal methodology applicable to the credit ratings is Morningstar DBRS Master U.S. ABS Surveillance (February 22, 2024), https://dbrs.morningstar.com/research/428506.

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

The credit ratings were initiated at the request of the rated entity.

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

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

These are solicited credit ratings.

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.

-- Operational Risk Assessment for U.S. ABS Servicers (March21, 2024),
https://dbrs.morningstar.com/research/430003
-- Operational Risk Assessment for U.S. ABS Originators (March21, 2024),
https://dbrs.morningstar.com/research/430004
-- Legal Criteria for U.S. Structured Finance (December 7, 2023),
https://dbrs.morningstar.com/research/425081
-- Rating U.S. Structured Finance Transactions (February 22, 2024),
https://dbrs.morningstar.com/research/428503
-- Rating U.S. Retail Auto Loan Securitizations (May 9, 2023),
https://dbrs.morningstar.com/research/413731

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