DBRS Morningstar Assigns Provisional Ratings to the Series 2021-1 Asset Backed Notes Issued by OnDeck Asset Securitization Trust III, LLC

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of notes to be issued by OnDeck Asset Securitization Trust III, LLC (the Issuer):

-- $200,842,000 Class A Notes at AAA (sf)
-- $49,421,000 Class B Notes at A (sf)
-- $29,210,000 Class C Notes at BBB (sf)
-- $20,527,000 Class D Notes at BB (sf)

The provisional 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. Credit enhancement levels are sufficient to support DBRS Morningstar’s assumptions of 46.79%, 32.88%, 24.63%, and 17.47%, respectively, with regard to the stressed cumulative net loss (CNL) for the Class A, Class B, Class C, and Class D notes.

-- In its analytical review, DBRS Morningstar considered the set of macroeconomic scenarios for select economies related to COVID-19, available in its commentary "Global Macroeconomic Scenarios: March 2021 Update," published on March 17, 2021. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020. The scenarios were updated on March 17, 2021 and are reflected in DBRS Morningstar's rating analysis. The assumptions consider the moderate macroeconomic scenario outlined in the commentary (the moderate scenario serving as the primary anchor for current ratings). The moderate scenario factors in increasing success in containment during the first half of 2021, enabling the continued relaxation of restrictions.

-- DBRS Morningstar’s stressed CNL hurdle rates at each rating level incorporate additional stress with regard to gross default performance, to the extent it is reflected in performance of the more recent vintages included in data sample reviewed by DBRS Morningstar. In addition to the actual performance data which contains COVID-19 related stress, DBRS Morningstar applied an extra COVID-19 adjustment to its stressed CNL hurdle rate assumption.

-- DBRS Morningstar also considered the performance of the then outstanding securitizations sponsored by OnDeck Capital, Inc. (OnDeck), which had been subjected to the significant stress from COVID-19 related shutdowns of and subsequent restrictions on the economic activity in 2020. All rated asset-backed securities (ABS) were able to withstand sudden negative shock to performance with support provided by available credit enhancement and robust collection effort by OnDeck. No classes of notes in both ABS series then rated by DBRS Morningstar experienced any downgrades, and all classes were fully repaid through their respective capital structures.

-- The transaction parties’ capabilities with regard to originating, underwriting, and servicing. DBRS Morningstar performed an operational review of OnDeck and considers it to be an acceptable originator and servicer of small business loans. Vervent Inc. is an experienced backup servicer in the commercial loan space (including obligations with more frequent than monthly repayment schedule). It has been backup servicer for OnDeck since 2010 in a variety of debt facilities.

-- The transaction incorporates collateral performance triggers that will be expected to protect the noteholders in a stressed environment. The collateral performance triggers include minimum three-month WA yield, minimum three-month WA excess spread, maximum three-month average delinquency level, and asset deficiency and required reserve account amount coverage. If these triggers are breached, an Amortization Event will occur without any action to be taken by the noteholders.

-- The legal structure and expected presence of legal opinions, which will address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with the estate of OnDeck, that the trust has a valid first-priority security interest in the assets, and consistency with the DBRS Morningstar "Legal Criteria for U.S. Structured Finance.”

The provisional rating on the Class A Notes reflects 37.15% of initial hard credit enhancement provided by subordinated notes in the pool (31.40%), overcollateralization (5.00%) and the reserve account (0.75%). The provisional ratings on the Class B, Class C and Class D Notes reflect 21.50%, 12.25%, and 5.75% 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 can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodologies are Rating Methodology for CLOs and CDOs of Large Corporate Credit (February 8, 2021), Rating U.S. Structured Finance Transactions (November 6, 2020), Rating U.S. Credit Card Asset-Backed Securities (August 7, 2020), and Rating CLOs Backed by Loans to European SMEs (September 30, 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.

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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