DBRS Morningstar Finalizes Provisional Ratings on Republic Finance Issuance Trust 2021-A

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following notes issued by Republic Finance Issuance Trust 2021-A:

-- $236,390,000 Series 2021-A, Class A at AA (sf) (the Class A Notes)
-- $56,810,000 Series 2021-A, Class B at A (low) (sf) (the Class B Notes)
-- $26,570,000 Series 2021-A, Class C at BBB (low) (sf) (the Class C Notes)
-- $30,230,000 Series 2021-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:

(1) Transaction capital structure, proposed ratings, 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.

(2) 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.

(3) 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 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.

(4) 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.

(5) 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.

(6) Wells Fargo Bank, N.A. (rated AA with a Negative trend by DBRS Morningstar) will serve as backup servicer.

(7) 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.

(8) The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary, “Baseline Macroeconomic Scenarios For Rated Sovereigns,” published on September 8, 2021. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020. The baseline macroeconomic scenarios reflect DBRS Morningstar's view that, although the coronavirus remains a risk to the outlook, uncertainty around the macroeconomic effects of the pandemic has gradually receded. Current median forecasts considered in the baseline macroeconomic scenarios incorporate some risks associated with further outbreaks, but remain fairly positive on recovery prospects given expectations of continued fiscal and monetary policy support. The policy response to the coronavirus may nonetheless bring other risks to the forefront in coming months and years.

(9) The legal structure and presence of legal opinions that 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 DBRS Morningstar’s “Legal Criteria for U.S. Structured Finance.”

Credit enhancement in the transaction consists of OC, subordination, excess spread, and a reserve account. The rating on the Class A Notes reflects the 36.25% of initial hard credit enhancement provided by the subordinated notes in the pool, the reserve account (0.75%), and OC (4.50%). The ratings on the Class B Notes, the Class C Notes, and the Class D Notes reflect 20.75%, 13.50%, and 5.25% 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 U.S. Structured Finance Transactions - Appendix I: U.S. Consumer Loan ABS Transactions (October 20, 2021) and Rating U.S. Credit Card Asset-Backed Securities (August 9, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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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