DBRS Morningstar Finalizes Provisional Ratings on Regional Management Issuance Trust 2021-2

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following notes (the Notes) issued by Regional Management Issuance Trust 2021-2 (the Issuer):

-- $151,760,000 Class A at AA (sf)
-- $15,040,000 Class B at A (sf)
-- $16,130,000 Class C at BBB (sf)
-- $17,070,000 Class D at BB (sf)

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

-- 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, the DBRS Morningstar-projected cumulative net loss (CNL) includes an assessment of the expected impact on consumer behavior. The DBRS Morningstar CNL assumption is 11.50%.
-- 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 - June 2021 Update,” published on June 18, 2021. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, that have been regularly updated. The scenarios were last updated on June 18, 2021, 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 factors in continued success in containment during the second half of 2021, enabling the continued relaxation of restrictions.
-- Transaction capital structure and form and sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization (OC), subordination, amounts held in the reserve fund, and excess spread. Credit enhancement levels are sufficient to support DBRS Morningstar’s 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.
-- Regional Management Corp.’s (Regional) capabilities with regard to originations, underwriting, and servicing.
-- DBRS Morningstar has performed an on-site operational review of Regional and, as a result, considers the entity to be an acceptable originator and servicer of unsecured personal loans with an acceptable backup servicer.
-- Regional’s senior management team has considerable experience and a successful track record within the consumer loan industry.
-- Regional has remained consistently profitable since 2007.
-- In February 2018, Regional completed a system migration to Nortridge Loan Management System, allowing for the implementation of custom scorecards for all branches, which led to the ability to implement a hybrid servicing model.
-- The credit quality of the collateral and performance of Regional’s consumer loan portfolio. DBRS Morningstar has used a hybrid approach in analyzing the Regional 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 address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with Regional, that the trust has a valid first-priority security interest in the assets, and the consistency with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance.”
-- Credit enhancement in the transaction consists of OC, subordination, a reserve account, and excess spread. The initial amount of OC is approximately 4.00% of the Initial Loan Pool. The subordination in the transaction refers to the Class B Notes, Class C Notes, and Class D Notes, which are subordinated to the Class A Notes (collectively, the Notes). The reserve account is 1.00% of the Initial Loan Pool and is funded at inception and nondeclining. Initial Class A credit enhancement of 28.16% includes a reserve account of 1.00%, OC of 4.00%, and subordination of 23.16%. Initial Class B credit enhancement of 20.94% includes a reserve account of 1.00%, OC of 4.00%, and subordination of 15.94%. Initial Class C credit enhancement of 13.19% includes a reserve account of 1.00%, OC of 4.00%, and subordination of 8.19%. Initial Class D credit enhancement of 5.00% includes a reserve account of 1.00% and OC of 4.00%.

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 U.S. Structured Finance Transactions (November 6, 2020) and Rating U.S. Credit Card Asset-Backed Securities (August 7, 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 release: 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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