Morningstar DBRS Assigned Provisional Credit Ratings to FHF Issuer Trust 2024-2

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the classes of notes issued by FHF Issuer Trust 2024-2 (FHF 2024-2), as follows:

-- $25,200,000 Class A-1 Notes at R-1 (high) (sf)
-- $177,904,000 Class A-2 Notes at AAA (sf)
-- $20,008,000 Class B Notes at AA (sf)
-- $19,876,000 Class C Notes at A (sf)
-- $11,451,000 Class D Notes at BBB (high) (sf)

CREDIT RATING RATIONALE/DESCRIPTION

The provisional credit ratings are based on Morningstar DBRS review of the following analytical considerations:

(1) The transaction capital structure, proposed credit ratings, and form and sufficiency of available credit enhancement.
-- Credit enhancement is in the form of OC, subordination, amounts held in the reserve fund, and available excess spread. Credit enhancement levels are sufficient to support the Morningstar DBRS-projected expected cumulative net loss (CNL) assumption under various stress scenarios.

(2) The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the credit rating addresses the payment of timely interest on a monthly basis and the payment of principal by the legal final maturity date.

(3) The quality and consistency of provided historical static pool data for FHF originations and performance of the FHF auto loan portfolio.

(4) The credit quality of the collateral and performance of FHF's auto loan portfolio, as of the Statistical Calculation Date:
-- The statistical pool will include 96.53% of receivables originated by franchise dealers with a weighted-average mileage of 40,377 miles.
-- The loans in the pool will have a non-zero WA credit score of 663 and a WA annual percentage rate of 19.30%.
-- Approximately 47% of the borrowers in the pool do not have a credit score.
-- The WA loan-to-value is 110.40%.
-- The Morningstar DBRS CNL assumption is 7.55% based on the Statistical Calculation Date pool composition and expected final pool composition.

(5) The capabilities of FHF with regard to originations, underwriting, and servicing.
-- Morningstar DBRS has performed an operational review of FHF and considers the entity to be an acceptable originator and servicer of subprime automobile loan contracts.
-- The consistent operational history of FHF and the overall strength of the Company and its management team.
-- The FHF senior management team has experience within the auto finance industry, with very limited turnover in the senior and mid-level management team.

(6) FHF has static pool data since 2007 which Morningstar DBRS used project losses and derive assumptions.

(7) 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 COVID-19 pandemic scenarios, which were first published in April 2020.

(8) The legal structure and presence of legal opinions that are expected to address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with FHF, that the trust has a valid first-priority security interest in the assets, and the consistency with the Morningstar DBRS Legal Criteria for U.S. Structured Finance.

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 Noteholders' Monthly Interest Distributable Amount and Principal Parity Amount.

Morningstar DBRS' credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations. The associated contractual payment obligation that is not a financial obligation for each of the rated notes is the related interest on any unpaid Noteholders' Interest Carryover 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, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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; 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. Retail Auto Loan Securitizations (May 9, 2024; https://dbrs.morningstar.com/research/432562)  
 
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/430189

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://www.dbrsmorningstar.com/about/methodologies.

Rating U.S. Structured Finance Transactions April 15, 2024) https://dbrs.morningstar.com/research/431204

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

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