DBRS Morningstar Finalizes Provisional Ratings on Prestige Auto Receivables Trust 2020-1

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes issued by Prestige Auto Receivables Trust 2020-1 (the Issuer):

-- $50,500,000 Class A-1 Notes at R-1 (high) (sf)
-- $154,520,000 Class A-2 Notes at AAA (sf)
-- $47,380,000 Class B Notes at AA (high) (sf)
-- $60,480,000 Class C Notes at A (sf)
-- $28,220,000 Class D Notes at BBB (high) (sf)
-- $35,890,000 Class E Notes at BB (high) (sf)

The ratings are based on a review by DBRS Morningstar of the following analytical considerations:
(1) Transaction capital structure, proposed ratings, and form and sufficiency of available credit enhancement.
-- Credit enhancement is in the form of subordination, overcollateralization (OC), amounts held in the reserve account, and excess spread. Credit enhancement levels are sufficient to support DBRS Morningstar-projected expected cumulative net loss (CNL) 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 the payment of principal by the Legal Final Maturity Date.

(2) The transaction parties’ capabilities with regard to originations, underwriting, and servicing.
-- DBRS Morningstar has performed an operational review of Prestige Financial Services, Inc. (Prestige or the Company) and considers the entity to be an acceptable originator and servicer of subprime auto receivables. Additionally, the transaction has an acceptable backup servicer.
-- The Company’s management team has extensive experience. Prestige has been lending to the subprime auto sector since 1994 and has considerable experience lending to Chapter 7 and 13 obligors.

(3) The credit quality of the collateral and performance of Prestige’s auto loan portfolio.
-- Prestige shared vintage CNL data with DBRS Morningstar that dates back to 2009. The data was broken down by credit tier, payment-to-income ratio, and other buckets. The analysis indicated a pattern of increasing losses that was consistent with expected trends.
-- The Company continues to evaluate and adjust its underwriting standards as necessary to target and maintain the credit quality of its loan portfolio.
-- DBRS Morningstar rating category loss multiples for each rating assigned are within the published criteria.

(4) DBRS Morningstar's projected losses include the assessment of the impact of the Coronavirus Disease (COVID-19). While considerable uncertainty remains with respect to the intensity and duration of the shock, DBRS Morningstar-projected CNL includes an assessment of the expected impact on consumer behavior. The DBRS Morningstar CNL assumption is 15.80% based on the expected cut-off date pool composition.
-- The transaction assumptions consider DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the coronavirus, available in its commentary “Global Macroeconomic Scenarios: September Update,” published on September 10, 2020. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, that have been regularly updated. The scenarios were last updated on September 10, 2020, and are reflected in DBRS Morningstar’s rating analysis. The assumptions also take into consideration observed performance during the 2008–09 financial crisis and the possible impact of stimulus. 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.

(5) The legal structure and presence of legal opinions address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with Prestige, that the Issuer has a valid first-priority security interest in the assets, and the consistency with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance.”

The ratings on the Class A-1 and Class A-2 Notes reflect 50.15% of initial hard credit enhancement provided by subordinated notes in the pool (42.65%), the reserve account (1.00%), and OC (6.50%). The ratings on the Class B, Class C, Class D, and Class E Notes reflect 38.40%, 23.40%, 16.40%, 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. Retail Auto Loan Securitizations (May 13, 2020), 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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