Morningstar DBRS Finalizes Provisional Credit Ratings on Lendmark Funding Trust 2024-2

DBRS, Inc. (Morningstar DBRS) finalized its provisional credit ratings on the classes of notes to be issued by Lendmark Funding Trust 2024-2 (Lendmark 2024-2), as follows:

-- $200,020,000 Class A Notes at AAA (sf)
-- $28,910,000 Class B Notes at AA (low) (sf)
-- $23,860,000 Class C Notes at A (low) (sf)
-- $22,910,000 Class D Notes at BBB (low) (sf)
-- $32,380,000 Class E Notes at BB (low) (sf)

The credit ratings are based on Morningstar DBRS review of the following analytical considerations:
(1) The transaction assumptions consider Morningstar DBRS's baseline macroeconomic scenarios for rated sovereign economies, available in its commentary Baseline Macroeconomic Scenarios for Rated Sovereigns: September 2024 Update, published on September 24, 2024. These baseline macroeconomic scenarios replace Morningstar DBRS's moderate and adverse coronavirus pandemic scenarios, which were first published in April 2020.
(2) The Morningstar DBRS CNL assumption is 11.00% and is driven by the re-investment criteria in a worst case pool scenario. The CNL assumption reflects an increase in inflation-led portfolio losses throughout 2022 and early 2023. Lendmark has since tightened their underwriting, enhanced their servicing touchpoints and tightened the re-investment criteria for Series 2024-2. While losses remain elevated, overall they are stable. The CNL assumption additionally incorporates a 5.00% recovery credit for all products based upon historical recovery performance
(3) Transaction capital structure and form and sufficiency of available credit enhancement.
-- Credit enhancement is in the form of OC, subordination, amounts held in the reserve fund, and excess spread. Credit enhancement levels are sufficient to support Morningstar DBRS's stressed projected finance yield, principal payment rate, and charge-off assumptions under various stress scenarios.
(4) 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 ratings address the timely payment of interest on a monthly basis and principal by the legal final maturity date.
(5) Lendmark's capabilities with regard to originations, underwriting, and servicing.
-- Morningstar DBRS has performed an operational review of Lendmark and considers the entity to be an acceptable originator and servicer of unsecured personal loans with an acceptable back-up servicer.
-- Lendmark's senior management team has considerable experience and a successful track record within the consumer loan industry.
(6) The credit quality of the collateral and performance of Lendmark's consumer loan portfolio. Morningstar DBRS has used a hybrid approach in analyzing the Lendmark portfolio that incorporates elements of static pool analysis employed for assets, such as consumer loans, and revolving asset analysis, employed for such assets as credit card master trusts.
-- The weighted-average (WA) remaining term of the Statistical Cut-Off Date is 46 months.
-- The WA Current Bureau Score as of the Statistical Cut-Off Date is approximately 625.
-- The weighted-average coupon (WAC) as of Statistical Cut-Off Date is 26.78%, and the transaction includes a Reinvestment Criteria Event if the WAC is less than 24.50%.
-- The Morningstar DBRS's base-case assumption for the finance yield is 24.50%.
-- Morningstar DBRS applied a finance yield haircut of 10.00% for Class A, 7.78% for Class B, 5.33% for Class C, 3.33% for Class D and 1.33% for Class E. While these haircuts are lower than the range described in the Morningstar DBRS's Rating U.S. Credit Card Asset-Backed Securities methodology, the fixed-rate nature of the underlying loans, lack of interchange fees, and historical yield consistency support these stressed assumptions.
-- Principal payment rates for Lendmark's portfolio, as estimated by Morningstar DBRS, have generally averaged between 3.0% and 5.0% over the past several years.
-- The Morningstar DBRS's base-case assumption for the principal payment rate is 3.20%.
-- Morningstar DBRS applied a payment rate haircut of 45.00% for Class A, 39.44% for Class B, 33.33% for Class C, 26.67% for Class D and 16.67% for Class E.
-- The legal structure and expected presence of legal opinions that address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with Lendmark, that the trust has a valid first-priority security interest in the assets, and consistency with the Morningstar DBRS's Legal Criteria for U.S. Structured Finance.

Morningstar DBRS's 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 Interest Distribution Amount, and the related Note Balance.

Morningstar DBRS's credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. The associated contractual payment obligations that are not financial obligations are the related interest on unpaid Interest Distribution Amount for each of the rated notes.

Morningstar DBRS's 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, 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 Factors in Credit Ratings (August 13, 2024; https://dbrs.morningstar.com/research/437781).

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

The principal methodologies applicable to the credit rating are Rating U.S. Structured Finance Transactions - Appendix I: U.S. consumer Loan ABS Transaction (August 6, 2024) https://dbrs.morningstar.com/research/437571/rating-us-structured-finance-transactions and Rating U.S. Credit Card Asset-Backed Securities (August 6, 2024) https://dbrs.morningstar.com/research/437551/rating-us-credit-card-asset-backed-securities.

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/435206.

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

Operational Risk Assessment for U.S. ABS Originators and Servicers (August 6, 2024), https://dbrs.morningstar.com/research/437545/operational-risk-assessment-for-us-abs-servicers

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

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