Morningstar DBRS Assigns Provisional Credit Ratings to Harvest SBA Loan Trust 2024-1

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following notes to be issued by Harvest SBA Loan Trust 2024-1 (HSLT 2024-1).

-- $81,400,000 Class A Notes at (P) A (low) (sf)
-- $7,800,000 Class B Notes at (P) BBB (low) (sf)
-- $6,000,000 Class C Notes at (P) BB (sf)

CREDIT RATING RATIONALE/DESCRIPTION

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

-- The transaction's capital structure and available credit enhancement. Note subordination, cash held in the Reserve Account, cash held in the Reserve Account, and available excess spread, as well as other structural provisions create credit enhancement levels which are sufficient to support Morningstar DBRS' stressed cumulative net loss (CNL) hurdle rate assumptions of 15.24%, 11.83%, and 9.06% respectively, for each of the A (low) (sf), BBB (low) (sf), and BB (sf) rating categories.

-- The transaction parties' capabilities with regard to originating, underwriting, and servicing of SBA 7(a) loans:
(1) Morningstar DBRS performed an operational review of Harvest and found it to be an acceptable originator and servicer for the collateral.
(2) In addition, Computershare Trust Company, N.A., which is an experienced servicer of CRE-backed loans, is the Backup Servicer and custodian for the transaction.

-- A review by Morningstar DBRS of Harvest's historical collateral performance since Harvest began originating, which found low defaults and minimal net losses.

-- A review of the initial collateral pool, which shows diversity by business type and property type, among other metrics, as well as strong overall credit characteristics, most notably with a weighted average obligor FICO score of 729, weighted average time in business of 18 years, and a weighted average current loan-to-value ratio of 74.46%.

-- Harvest's underwriting process, which evaluates the small business borrower's ability to repay the loan primarily from the business cash flows of normal operations (recurring income sources) to service both its existing debt and the requested loan. The weighted average debt service coverage ratio (DSCR) for loans in the initial pool is 2.53x.

-- A review of the collateral pool's industry concentrations against historical performance of SBA data for significant industry concentrations as well as aggregate vintage performance.

-- Collateral eligibility and concentration limits built into the prefunding parameters that ensure that the final collateral pool continues to maintain strong credit characteristics and collateral diversification.

-- The transaction features a full turbo structure to the Notes.

-- The legal structure and expected legal opinions that will address the true sale of the receivables, the nonconsolidation of the assets of the Issuer, that the Indenture Trustee has a valid first-priority security interest in the assets, and consistency with Morningstar DBRS' Legal Criteria for U.S. Structured Finance.

-- The transaction assumptions consider Morningstar DBRS' 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' moderate and adverse coronavirus pandemic scenarios, which were first published in April 2020.

Morningstar DBRS' credit ratings on the notes referenced herein address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for the Class A, Class B and Class C Notes are the Interest Payment Amount (including any unpaid interest from prior periods) and the Note Principal 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 obligations that are not financial obligations for each of the Notes are the interest on unpaid Current Interest or Carryforward Interest and the Net WAC Rate 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 Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in US dollars unless otherwise noted.

The principal methodology applicable to the credit ratings is Rating U.S. Structured Finance Transactions (Appendix XVIII: U.S. Small Business) (November 18, 2024) https://dbrs.morningstar.com/research/443136.

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 the final credit ratings on the above-mentioned securities are 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.

Global Methodology for Rating CLOs and Corporate CDOs and the CLO Insight Model v1.0.1.4 (September 19, 2024)
https://dbrs.morningstar.com/research/439759/global-methodology-for-rating-clos-and-corporate-cdos.

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

Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024)
https://dbrs.morningstar.com/research/428623/interest-rate-stresses-for-us-structured-finance-transactions

Legal Criteria for U.S. Structured Finance (October 28, 2024)
https://dbrs.morningstar.com/research/441840/legal-criteria-for-us-structured-finance

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