Morningstar DBRS Assigns Provisional Credit Ratings to DailyPay Securitization Trust 2025-1

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following notes to be issued by DailyPay Securitization Trust 2025-1:

-- $179,450,000 Class A Notes at (P) AA (sf)
-- $5,120,000 Class B Notes at (P) A (sf)
-- $6,810,000 Class C Notes at (P) BBB (sf)
-- $8,620,000 Class D Notes at (P) BB (sf)

CREDIT RATING RATIONALE/DESCRIPTION
(1) The Transaction's capital structure and available credit enhancement. Subordination, overcollateralization (OC), cash held in the Reserve Account and available Excess Fee Revenue, as well as other structural provisions create credit enhancement levels which are sufficient to support Morningstar DBRS' stressed cumulative gross loss (CGL) hurdle rate assumptions of 19.85%, 16.94%, 12.95% and 9.03%, respectively, for each of the AA (sf), A (sf), BBB (sf) and BB (sf) rating categories. The respective stressed cumulative net loss (CNL) hurdle rates for the Class A, Class B, Class C and Class D Notes are 16.05%, 13.65%, 10.37% and 6.94%.
-- The required OC during the revolving period will be equal to approximately 6.10% of the Initial Adjusted Pool Balance. The Notes will amortize sequentially, on a "full turbo" basis during the Amortization Period.
-- A nonamortizing, replenishable cash reserve account will equal 0.75% of the initial Note Balance and may be used to pay interest and senior expenses (but not to make Priority Principal Payments).
-- Despite the expected paydown of the Notes within a month during amortization, cash flow scenarios by Morningstar DBRS incorporate the full annual capped amount of senior expenses ($250,000) as well as a one-time senior expense amount of $250,000.

(2) Morningstar DBRS used its CLO Insight Model to generate the stressed CGL at each rating level based on the "worst case" proxy collateral pool based on the applicable transaction terms. Given limitations on collateral quality migration during the revolving period imposed by concentration limits, eligibility criteria and performance triggers, as well as the fact that Morningstar DBRS used the "worst case" collateral proxy pool in the CLO Insight Model, the Collateral Modeling Tenor input in the CLO Insight Model was adjusted to be shorter than the revolving period and to be more reflective of the expected tenor of collateral.

(3) A review by Morningstar DBRS of the historical weekly Receivables performance of DailyPay going back to October 2021. Historically, the first day default rate stemming both (a) from very limited cases of corporate default and (b) from administrative defaults (e.g., failure by employer to include child support deductions in the file submitted to DailyPay, which resulted in lower-than-expected remittance on payday) averaged 0.28%, with the average recovery rate of 71.08%.

(4) The collateral is expected to generate a substantial aggregate amount of fees (the Excess Revenue). The Excess Revenue is generated by a flat fee of approximately $3.49 that DailyPay charges on instant cash transfers (other than transfers on its credit card). Historically, most customers (91.8% of all On-Demand Pay disbursements on average over 12-month period ending in November 2024) consistently opted for instant transfer.
-- Morningstar DBRS assigned only a limited credit to excess fee revenue in its cash flow scenarios based on the Early Amortization Event trigger of 10% and incorporating loss of revenue because of stressed defaults in each respective rating's cash flow scenario. Morningstar DBRS cash flow scenarios also gave no credit to an average historically experienced 2.6x (times) turn of receivables within a month in assessment of the available Excess Revenue at the start of Amortization Period.

(5) Collateral eligibility requirements and concentration limits that ensure the consistent credit quality and diversity of the collateral pool backing the Notes during the revolving period. The proxy collateral pool assumed by Morningstar DBRS in its assessment of the stressed CGL based on such concentration limits is more conservative relative to the actual and expected obligor and industry mix in the DailyPay's portfolio. The collateral concentration limits and eligibility criteria cover the maximum term of the receivables, the minimum number of obligors, obligor industry concentrations, individual largest obligor concentrations for investment-grade, non-investment grade and unrated obligors, as well as the aggregate obligor exposure within specific credit rating categories (e.g., credit rating equivalent BBB (low) and better).
-- Morningstar DBRS assumed the minimum possible credit rating equivalent (for instance, for "BBB (low) and above" category, only BBB (low) credit rating assumption was used).
-- All unrated obligors were assumed to have credit quality commensurate with a CCC credit rating.

(6) Amortization Event triggers which are designed to protect Noteholders in the event of weaker-than-expected collateral performance including, among others, a breach of several collateral performance triggers:
-- As of any Measurement Date, the Non-Collection Ratio for the most recently ended Measurement Period exceeds 2.00%.
-- As of any Measurement Date, the Delinquency Ratio for the most recently ended Measurement Period exceeds 4.50%,
-- As of any Measurement Date, the Annualized Excess Revenue Ratio for the most recently ended Measurement Period is less than 10.00%.

(7) The transaction parties' capabilities with regard to originating, underwriting, and servicing.
-- Morningstar DBRS performed an operational review of DailyPay and considers it to be an acceptable originator and servicer of On-Demand Pay Receivables with a backup servicer that is acceptable to Morningstar DBRS.
-- Vervent is an experienced backup servicer in the commercial receivables space and is acceptable to Morningstar DBRS as a back-up servicer in a transaction backed by On-Demand Pay Receivables.

(8) The average Statistical Pool during the month March 2025 included 901,898 Receivables, with the average outstanding Receivable balance of $422.95. The weighted average remaining Receivable term was seven days, and on average during the month, 92.28% of Receivables were expected to be repaid within 13 days or less. The largest, top five and top ten corporate obligors accounted for 7.64%, 16.30% and 29.09% of the aggregate Receivables balance, respectively. The investment grade obligors accounted for 28.25% of the aggregate Receivables balance, and non-investment grade obligors accounted for 19.37%, with the remainder being represented by unrated obligors. Top five employer industries accounted for 82.41% of the aggregate Receivables balance and comprised retail (27.33%), healthcare services (16.37%), hospitals and physicians' clinics (14.74%), business services (13.74%) and hospitality (10.22%). Furthermore, 87.28% of Receivables on average were represented by the employers onboarded by DailyPay as customers during 2023 or earlier.

(9) On January 22, 2025, DailyPay received a letter from the New York Attorney General's Office setting forth its intent to sue DailyPay in connection with its On-Demand Pay product and to seek restitution and other monetary and other relief for DailyPay's alleged violations of New York's laws on wage assignments, civil and criminal usury, and advertising, among others. Receivables with respect to which the related User has an address in the state of New York will not be included in the Pooled Receivables on the Closing Date and will not be added to the Pooled Receivables until a "NYAG Resolution" (as defined in the definition of Eligible Receivables) has occurred with respect to such Receivables.

(10) The legal structure and expected legal opinions that will address the true sale of the receivables, the nonconsolidation of the assets of the Issuer, that the Indenture Trustee has a valid first-priority security interest in the assets, and consistency with Morningstar DBRS' "Legal Criteria for U.S. Structured Finance".

(11) The transaction assumptions consider Morningstar DBRS' baseline macroeconomic scenarios for rated sovereign economies, available in its commentary, Baseline Macroeconomic Scenarios For Rated Sovereigns: March 2025 Update published on March 26, 2025. These baseline macroeconomic scenarios replace Morningstar DBRS' moderate and adverse COVID-19 pandemic scenarios, which were first published in April 2020.

Morningstar DBRS' credit rating on the securities referenced herein addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the Interest and accrued interest, and the Initial Note Balance for each of the rated notes.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, the Interest on the amount of interest due but not paid, and the optional redemption of the Notes for each of the rated notes.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196.

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

The principal methodologies applicable to the credit ratings are:
-- Rating U.S. Structured Finance Transactions (Front Section) (March 10, 2025), https://dbrs.morningstar.com/research/449616
-- Global Methodology for Rating CLOs and Corporate CDOs (November 19, 2024), https://dbrs.morningstar.com/research/443207

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of the final credit ratings on the above-mentioned securities are subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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

DBRS, Inc.
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New York, NY 10005 USA
Tel. +1 212 806-3277

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Global Methodology for Rating CLOs and Corporate CDOs and the CLO Insight Model v1.0.1.4 (November 19, 2024),
https://dbrs.morningstar.com/research/443207
-- Rating U.S. Structured Finance Transactions (March 10, 2025),
https://dbrs.morningstar.com/research/449616
-- Operational Risk Assessment for U.S. ABS Originators and Servicers (March 26, 2025),
https://dbrs.morningstar.com/research/450709
-- Legal Criteria for U.S. Structured Finance (December 3, 2024),
https://dbrs.morningstar.com/research/444064

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.