Morningstar DBRS Assigns Provisional Credit Ratings to Merchants Fleet Funding LLC, Series 2024-1

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes (together, the Notes) to be issued by Merchants Fleet Funding LLC, Series 2024-1 (the Transaction):

-- $409,200,00 Class A Notes at AAA (sf)
-- $19,720,000 Class B Notes at AA (sf)
-- $28,950,000 Class C Notes at A (high) (sf)
-- $26,330,000 Class D Notes at BBB (sf)
-- $15,800,000 Class E Notes at BB (sf)

The credit ratings on the Notes are based on Morningstar DBRS’ review of the following considerations:
-- Transaction capital structure, proposed credit ratings, and form and sufficiency of available credit enhancement.
-- Credit enhancement levels are sufficient to support Morningstar DBRS stressed loss assumptions under various scenarios.
-- The yield supplement account is established to supplement the yield from any lease that does not meet a minimum yield requirement.
-- The Transaction’s ability to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested. The credit ratings address the payment of timely interest on a monthly basis and principal by the Legal Final Maturity.
-- Merchants Fleet Funding LLC’s (Merchants) capabilities with regard to originations, underwriting, and servicing.
-- Morningstar DBRS continues to deem Merchants an acceptable originator and servicer of fleet leases.
-- The high-credit-quality obligors given strong historical performance of the collateral.
-- The leased vehicles are essential use vehicles for customers; therefore, such leases are likely to be affirmed by an obligor in a bankruptcy proceeding.
-- These leases are hell-or-high water and triple net with no set-off language. The lessee is responsible to pay all taxes, title, and registration charges.
--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 Disease (COVID-19) pandemic scenarios, which were first published in April 2020.

Morningstar DBRS’ credit rating on Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the Class Monthly Interest and Class Invested Amount.

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. For example, the Class A Additional Interest, Class B Additional Interest, Class C Additional Interest, Class D Additional Interest, and Class E Additional Interest.

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 (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

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

The principal methodology applicable to the credit ratings is Rating U.S. Auto Fleet Lease Securitizations (September 25, 2023; https://dbrs.morningstar.com/research/421024).

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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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

DBRS, Inc.
140 Broadway, 43rd Floor
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.

Rating U.S. Structured Finance Transactions (April 15, 2024)
https://dbrs.morningstar.com/research/431204/rating-us-structured-finance-transactions

Operational Risk Assessment for U.S. ABS Servicers (March 21, 2024)
https://dbrs.morningstar.com/research/430003/operational-risk-assessment-for-us-abs-servicers

Operational Risk Assessment for U.S. ABS Originators (March 21, 2024)
https://dbrs.morningstar.com/research/430004/operational-risk-assessment-for-us-abs-originators

Legal Criteria for U.S. Structured Finance (April 15, 2024)
https://dbrs.morningstar.com/research/431205/legal-criteria-for-us-structured-finance

Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024)
https://dbrs.morningstar.com/research/428623/

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