DBRS Morningstar Finalizes its Provisional Ratings on Republic Finance Issuance Trust 2020-A

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following notes issued by Republic Finance Issuance Trust 2020-A:

-- $132,960,000 Series 2020-A, Class A at AA (sf) (the Class A Notes)
-- $28,270,000 Series 2020-A, Class B at A (low) (sf) (the Class B Notes)
-- $16,120,000 Series 2020-A, Class C at BBB (low) (sf) (the Class C Notes)
-- $23,650,000 Series 2020-A, Class D at BB (low) (sf) (the Class D Notes)

The ratings are based on DBRS Morningstar’s review of the following analytical considerations:

-- Transaction capital structure, proposed ratings, and form and sufficiency of available credit enhancement.
-- 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.
-- The transaction assumptions consider DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the Coronavirus Disease (COVID-19), available in its commentary “Global Macroeconomic Scenarios: September Update,” published on September 10, 2020. DBRS Morningstar initially published its macroeconomic scenarios on April 16, 2020, and they have been regularly updated. The scenarios were last updated on September 10, 2020, and are reflected in DBRS Morningstar’s rating analysis.
--The assumptions consider the moderate macroeconomic scenario outlined in the commentary, with the moderate scenario serving as the primary anchor for current ratings. The moderate scenario remains predicated on a more rapid return of confidence and a steady recovery heading into 2021.
-- Republic Finance, LLC’s (Republic or the Company) capabilities with regard to originations, underwriting, and servicing.
-- DBRS Morningstar performed an operational review of Republic and considers the entity to be an acceptable originator and servicer of personal loans with an acceptable backup servicer.
-- Republic’s senior management team has considerable experience and a successful track record within the consumer loan industry.
-- The acquisition of a majority stake in the Company by CVC Capital Partners (CVC) in December 2017. CVC has since implemented a growth strategy that includes increasing the number of branches, centralizing the underwriting and servicing functions, and 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.
-- Wells Fargo Bank, N.A. (rated AA with a Negative trend by DBRS Morningstar) will serve as backup servicer.
-- The credit quality of the collateral and performance of Republic’s consumer loan portfolio. DBRS Morningstar 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 legal structure and presence of legal opinions that will address the true sale of the assets from the Seller to the Depositor, the nonconsolidation 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 the DBRS Morningstar “Legal Criteria for U.S. Structured Finance.”

Credit enhancement in the transaction consists of overcollateralization, subordination, excess spread, and a reserve account. The rating on the Class A Notes reflects the 39.15% of initial hard credit enhancement provided by the subordinated notes in the pool, the reserve account (1.00%), and overcollateralization (6.50%). The ratings on the Class B Notes, the Class C Notes, and the Class D Notes reflect 26.00%, 18.50%, and 7.50% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at https://www.dbrsmorningstar.com/research/357792.

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

The principal methodology is Rating U.S. Structured Finance Transactions – Appendix I: U.S. Consumer Loan ABS Transactions (November 6, 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press releases: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.

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

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