Morningstar DBRS Finalizes Provisional Credit Ratings on PRPM 2024-RPL2, LLC

DBRS, Inc. (Morningstar DBRS) finalized its provisional credit ratings on the Asset-Backed Notes, Series 2024-RPL2 (the Notes) to be issued by PRPM 2024-RPL2, LLC (PRPM 2024-RPL2 or the Trust) as follows:

-- $219.4 million Class A-1 at AAA (sf)
-- $25.9 million Class A-2 at AA (sf)
-- $25.1 million Class A-3 at A (sf)
-- $34.4 million Class M-1 at BBB (sf)
-- $15.2 million Class M-2 at BB (sf)

The AAA (sf) rating on the Class A-1 Notes reflects 37.40% of credit enhancement provided by subordinated notes. The AA (sf), A (sf), BBB (sf), and BB (sf) ratings reflect 30.00%, 22.85%, 13.05%, and 8.70% of credit enhancement, respectively.

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

The Trust is a securitization of seasoned performing and reperforming, first-lien residential mortgages, to be funded by the issuance of mortgage-backed notes (the Notes). The Notes are backed by 2,082 loans with a total principal balance of $350,523,187 as of the Cut-Off Date (April 30, 2024).

The mortgage loans are approximately 211 months seasoned. As of the Cut-Off Date, 67.4% of the loans are current under the Mortgage Bankers Association (MBA) delinquency method, including 240 (10.8% of the loans) bankruptcy-performing loans.

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, 1,758 loans, or 85.9%, have made six or more payments and 1,600 loans, or 78.4%, have made 12 or more payments.

Modified loans make up 88.4% of the portfolio. The modifications happened more than two years ago for 90.5% of the modified loans. Within the pool, 670 mortgages (32.1% of the pool by loan count) have a total non-interest-bearing deferred amount of $27,171,437, which equates to approximately 37.3% 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 Sponsor, will retain the Class B Notes.

SN Servicing Corporation (SNSC) will service all of 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; (2) any accrued and unpaid interest due on the Notes through the redemption date (including any Cap Carryover); and (3) any fees and expenses of the transaction parties, including any unreimbursed servicing advances (Redemption Price). Such Optional Redemption may be exercised on or after the payment date in May 2026.

Additionally, a failure to pay the Notes in full by the Payment Date in May 2029 will trigger a mandatory auction of the underlying certificates (mortgage loans). If the auction fails to elicit sufficient proceeds to make-whole the Notes, another auction will follow every four months for the first year, and subsequently auctions will be carried out every six months. If the Asset Manager fails to conduct the auction, holders of more than 50% of the Class M-2 Notes will have the right to appoint an auction agent to conduct the auction.

The transaction employs a sequential-pay cash flow structure with a bullet feature to Class A-2 and more subordinate notes on either the Expected Redemption Date or after a Credit Event. P&I collections are commingled and are first used to pay interest and any Cap Carryover amount to the Notes sequentially and then to pay Class A-1 until its balance is reduced to zero, which may provide for timely payment of interest on certain rated Notes. Class A-2 and below are not entitled to any payments of principal until the Expected Redemption Date or upon the occurrence of a Credit Event, except for remaining available funds representing net sales proceeds of the mortgage loans. Prior to the Expected Redemption Date or an Event of Default, any available funds remaining after Class A-1 is paid in full will be deposited into a Redemption Account. Beginning on the Payment Date in May 2028, the Class A-1 and the other offered Notes will be entitled to its initial Note Rate plus the step-up note rate of 1.00% per annum. If the Issuer does not redeem the rated Notes in full by the payment date in July 2031 or an Event of Default occurs and is continuing, a Credit Event will have occurred. Upon the occurrence of a Credit Event, accrued interest on Class A-2 and the other offered Notes will be paid as principal to Class A-1 or the succeeding senior Notes until it has been paid in full. The redirected amounts will accrue on the balances of the respective Notes and will later be paid as principal payments.

The credit ratings reflect transactional strengths that include the following:
-- Loan-to-value ratios,
-- Satisfactory third-party due-diligence review,
-- Representations and warranties standard,
-- Structural features, and
-- Seasoning.

The transaction also includes the following challenges:
-- No servicer advances of delinquent principal and interest, and
-- Representations and warranties standard, and
-- Assignments, endorsements, and missing documents.

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

Morningstar DBRS' credit rating on the Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are Interest Payment Amount, Cap Carryover Amount, and Note Amount.
Morningstar DBRS' credit rating on the Notes also addresses the credit risk associated with the increased rate of interest applicable to the Notes if the Notes are not redeemed on the Expected Redemption Date (as defined in and) in accordance with the applicable transaction documents.

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 (August 31, 2023) https://dbrs.morningstar.com/research/420108

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.
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.

-- Assessing U.S. RMBS Pools Under the Ability-to-Repay Rules (April 28, 2023), https://dbrs.morningstar.com/research/413297
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- Third-Party Due-Diligence Criteria for U.S. RMBS Transactions (September 8, 2023), https://dbrs.morningstar.com/research/420333
-- Representations and Warranties Criteria for U.S. RMBS Transactions (May 16, 2023), https://dbrs.morningstar.com/research/414076
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205
-- Operational Risk Assessment for U.S. RMBS Originators (August 31, 2023), https://dbrs.morningstar.com/research/420106
-- Operational Risk Assessment for U.S. RMBS Servicers (August 31, 2023), https://dbrs.morningstar.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.