Morningstar DBRS Assigns Provisional Credit Ratings to Republic Finance Issuance Trust 2024-B

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes of notes (collectively, the Notes) to be issued by Republic Finance Issuance Trust 2024-B (REPS 2024-B):

-- $257,290,000 Class A Notes at (P) AA (sf)
-- $42,030,000 Class B Notes at (P) A (low) (sf)
-- $22,850,000 Class C Notes at (P) BBB (low) (sf)
-- $27,830,000 Class D Notes at (P) BB (low) (sf)

CREDIT RATING RATIONALE/DESCRIPTION

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

-- Transaction capital structure and form and sufficiency of available credit enhancement.
-- Credit enhancement will be in the form of OC, subordination, amounts held in the reserve fund, and excess spread. Credit enhancement levels are sufficient to support Morningstar DBRS' stressed projected finance yield, principal payment rate, and charge-off assumptions under various stress scenarios.
---- 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.
-- Republic's capabilities with regard to originations, underwriting, and servicing. Morningstar DBRS performed an operational review of Republic and considers the entity an acceptable originator and servicer of personal loans with an acceptable backup servicer. The Company's senior management team, although newer to Republic, has considerable experience and a successful track record in the consumer loan industry.
-- Acquisition of a majority stake in the Company by CVC in November 2017 with the founding family retaining a significant share of the Company. CVC has since implemented and maintained a growth strategy, including increasing the number of branches, centralizing certain underwriting, and servicing functions as well as building an online presence.
-- In April 2019, Republic completed the implementation of centralized underwriting policies and processes for all branches, which led to the ability to create a hybrid servicing model. The Company opened a fully centralized collections center in Charlotte, North Carolina. The center was further enhanced in 2021 to close loans over the phone with customers that are not within the geographical footprint of a branch.
-- Computershare Trust Company, N.A. will serve as backup servicer.
-- The credit quality of the collateral and performance of Republic's consumer loan portfolio. Morningstar DBRS has used a hybrid approach in analyzing the Republic portfolio that incorporates elements of static pool analysis, employed for assets such as consumer loans, and revolving asset analysis, employed for assets such as credit card master trusts.
---- The weighted-average (WA) remaining term of the collateral pool is approximately 33 months.
-- Morningstar DBRS applied a finance yield haircut of 8.00% for Class A, 5.33% for Class B, 3.33% for Class C, and 1.67% for Class D. While these haircuts are lower than the range described in the Morningstar DBRS 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.
---- The base-case assumption for yield is 25.50%, which remains same as 2024-A transaction and aligns with the reinvestment criteria event if the WAC is less than 25.50%.
---- The weighted-average coupon (WAC) of the pool is 27.81%.
-- Principal payment rates for Republic's portfolio, as calculated by Morningstar DBRS, have trended lower since 2017. Depending on the credit tiers and sub-portfolio, these rates have generally averaged between 2.5% and 8.0% over the past several years.
---- The Morningstar DBRS base-case assumption for the principal payment rate is 3.13%.
---- Morningstar DBRS applied a payment rate haircut of 40.00% for Class A, 33.33% for Class B, 26.67% for Class C, and 16.67% for Class D Notes.
-- 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 25, 2024. These baseline macroeconomic scenarios replace Morningstar DBRS's moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.
-- Morningstar DBRS projected base case annualized CNL has decreased from the prior 2024-A transaction mainly due to tighter re-investment criteria. Charge-off rates spike in mid-2022 and early 2023. The losses were related to inflation affordability issues that many of Republic borrowers faced during early 2022. Since then, Republic has taken many steps to tighten underwriting, enhance servicing and cease originations in certain buckets. The portfolio has since stabilized, the Morningstar DBRS net charge-off assumption rate is 14.50%
-- The legal structure and presence of legal opinions that will address the true sale of the assets from the Seller to the Depositor, the non-consolidation of the special-purpose vehicle with the Seller, that the Indenture Trustee has a valid first-priority security interest in the assets, and that it is consistent with Morningstar DBRS' Legal Criteria for U.S. Structured Finance.

Morningstar DBRS' credit ratings on the securities referenced herein address 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 Monthly Interest Amount and the related Note Balance.

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 Monthly Interest 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, or 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 Factors in Credit Ratings (August 13, 2024) at 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 Transactions (August 06, 2024; https://dbrs.morningstar.com/research/437571) and Rating U.S. Credit Card Asset-Backed Securities (August 06, 2024; https://dbrs.morningstar.com/research/437551).

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.
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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.

-- Rating U.S. Structured Finance Transactions (August 06, 2024), https://dbrs.morningstar.com/research/437571
-- Operational Risk Assessment for U.S. ABS Originators and Servicers (August 06, 2024), https://dbrs.morningstar.com/research/437545
-- 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 dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.