Morningstar DBRS Downgrades Credit Ratings on Coinstar Funding, LLC, Series 2017-1 and Series 2018-1

DBRS, Inc. (Morningstar DBRS) downgraded its credit ratings on two securities issued by Coinstar Funding, LLC asset-backed securities (ABS) transaction as follows:

Coinstar Funding, LLC, Series 2017-1
-- Series 2017-1, Class A-2 Notes to BBB (low) (sf) from BBB (sf)
Coinstar Funding, LLC, Series 2018-1
-- Series 2018-1, Class A-2 Notes to BBB (low) (sf) from BBB (sf)

Morningstar DBRS also removed the credit ratings from Under Review with Negative Implications, where they were placed on January 5, 2024. For more information, please see the related press release at https://dbrs.morningstar.com/research/426202.

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

-- Amendments were executed with noteholder consent for a partial waiver of the April 2023 anticipated repayment date (ARD) rapid amortization event (RAE) for approximately three years, ending in April 2026. However, this also added net debt of approximately $43 million to the transaction in the form of a manager advance term loan that is senior in payment priority to the rated ABS notes. This is reflected in Morningstar DBRS' breakeven cash flow results, which factor in the total debt quantum that would be paid ahead of the rated ABS notes even if is not included in the debt service coverage ratio (DSCR) and leverage metrics during the three-year waiver period.

-- Revenues from the company's core self-serve coin-counting operations have experienced a slower pace of recovery due to prolonged lower coin-conversion volumes in the U.S., despite a stable to gradual increase in the number of kiosks in place as well as a slightly higher transaction fee.

-- As of the Q1 2024 noteholder report, Morningstar DBRS' cash flow analysis showed that the notes could withstand a day-one haircut of approximately 43.1% of revenues without future recoveries and could pay off the rated notes completely before the legal final maturity date in Morningstar DBRS' stress scenarios, consistent with a BBB (low) sf credit rating. Morningstar DBRS typically does not give credit for future growth.

-- Morningstar DBRS notes that other components of securitized net cash flow continue to improve. International revenues and other income, the latter of which includes newer product offerings such as cryptocurrency purchases in kiosks, have risen steadily over the last several quarters.

-- Performance metrics are trending positively. The DSCR calculation, which was amended with noteholder consent at the time of the 2023 ARD to exclude the excess debt from the manager advance term loan, was 2.61x; the interest-only DSCR was 3.14x; and the senior ABS leverage ratio was 6.13x at Q1 2024 , all within transaction performance trigger thresholds.

-- The transaction parties' capabilities with regard to manager, backup manager, and servicer.

-- The transaction assumptions consider Morningstar DBRS' baseline macroeconomic scenarios for rated sovereign economies, available in its commentary "Baseline Macroeconomic Scenarios For Rated Sovereigns: June 2024 Update," published on June 28, 2024. These baseline macroeconomic scenarios replace Morningstar DBRS' moderate and adverse COVID-19 pandemic scenarios, which were first published in April 2020.

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 Morningstar DBRS Master U.S. ABS Surveillance (May 8, 2024), https://dbrs.morningstar.com/research/432485.

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.
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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 (March 21, 2024),
https://dbrs.morningstar.com/research/430003
-- Operational Risk Assessment for U.S. ABS Originators (March 21, 2024),
https://dbrs.morningstar.com/research/430004
-- Legal Criteria for U.S. Structured Finance (April 15, 2024),
https://dbrs.morningstar.com/research/431205
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024),
https://dbrs.morningstar.com/research/428623
-- Rating U.S. Structured Finance Transactions (April 15, 2024),
https://dbrs.morningstar.com/research/431204

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