Fitch Ratings has assigned ratings and Rating Outlooks to the Verizon Master Trust Series 2024-3 notes issued by Verizon Master Trust (VZMT).

The VZMT series 2024-3 notes represent the 19th overall term issuance from the VZMT. The notes are collateralized by device payment plan agreements (DPPs), which were originated by Cellco Partnership (d/b/a Verizon Wireless) and other affiliates of Verizon and are serviced by Cellco Partnership.

RATING ACTIONS

Entity / Debt

Rating

Prior

Verizon Master Trust Series 2024-3

A1A

LT

AAAsf

New Rating

AAA(EXP)sf

A1B

LT

AAAsf

New Rating

AAA(EXP)sf

B

LT

AA+sf

New Rating

AA+(EXP)sf

C

LT

AA-sf

New Rating

AA-(EXP)sf

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VIEW ADDITIONAL RATING DETAILS

KEY RATING DRIVERS

Solid Receivable Quality: The VZMT pool is revolving and primarily consists of DPPs that are originated and serviced by affiliates of Verizon Communications Inc. (Verizon). The weighted average (WA) tenure of customers that have been with Verizon is 115.67 months; furthermore, the non-zero WA FICO score is 723.44, and 25.79% of borrowers have a FICO score below 650 (or no FICO score available), which Fitch would consider subprime credit quality.

The pool also features business DPP receivables at 10.00%, the maximum permitted based on the contractual concentration limits. Fitch believes handset receivables are supported by borrowers' prioritization of these installment payments over other consumer loans given the essential nature of internet connectivity for work, school and telehealth.

The DPPs were originated at 24-month (0.09%), 30-month (1.87%) and 36-month (98.04%) original terms. In February 2022, Verizon announced that 36-month term loans will be originated going forward; the composition of these loans as a percentage of the pool has increased and is expected to increase further over time.

Base Case Loss Proxy Reflects Revolving Pool: Fitch's default assumption for the pool as of the statistical calculation date is 3.17%; however, a base case loss assumption of 3.95% was assigned to the worst-case portfolio to account for the revolving nature of the pool. Fitch previously revised the base case loss assumptions from 3.94% to reflect an increase in defaults for recent vintages for business obligors with limited tenure with Verizon. However, both consumer and business obligors continue to exhibit stable performance since, as a result Fitch has maintained its assumption.

The DPPs in the pool may revolve for up to three years. Fitch applied a stress multiple of 4.30x and 4.80x at the 'AAAsf' stress level, for the consumer and business portfolios, respectively.

The stress multiples reflect the length of the revolving period with the view that customer and business payment behavior on the DPPs could be negatively affected by a Verizon insolvency as well as the potential for performance degradation during the revolving period.

Stable Historical Performance: To date, overall default performance of Verizon's prior securitizations and overall managed portfolio has been stable and in line or better than previous base case loss proxies. Recent performance of VZMT has remained strong with 60+ days delinquencies continuing to stay at or below 70 bps since inception.

Verizon Rating Exposure: The note ratings face greater exposure than other consumer loan transactions to the credit profile and market position of Verizon, whose subsidiaries act as originators, the servicer and the network operator. Customers may change their payment behavior in the event of a Verizon insolvency and concerns about the viability of its mobile network. For these reasons, a multi-notch downgrade of Verizon, to low speculative grade, may increase the likelihood of a downgrade of the notes.

Fitch currently rates Verizon 'A-'/'F1'/Stable. However, there is no automatic credit linkage, because of other factors such as the current strength of Verizon's network, Fitch's 0.25% upgrade risk uplift to the loss assumption at each rating category and the additional credit enhancement (CE) to cover any such risk and the available CE, could lessen any rating impact in the future.

Adequate Servicing Capabilities: Fitch considers Verizon's servicing operations of cell phone contracts adequate and a strength compared with peers. Cellco Partnership has acted as servicer of all previous Verizon securitizations and has a long track record of underwriting and servicing consumer cell phone contracts including DPPs. Cellco Partnership demonstrates strong capabilities to service this transaction as evidenced by the tools at its disposal for payment collections (i.e. service disconnection) and by its historical portfolio performance.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Unanticipated increases in the frequency of defaults or charge-offs on customer accounts could produce loss levels higher than the base case and would likely result in declines of CE and remaining loss coverage levels available to the notes. Decreased CE may make certain ratings on the notes susceptible to potential negative rating actions, depending on the extent of the decline in coverage.

Fitch conducts sensitivity analysis by stressing a transaction's initial base case default assumption an additional 10%, 25%, 50% and 100% and examining rating implications. These increases of the base case are intended to provide an indication of the rating sensitivity of the notes to unexpected deterioration of a trust's performance.

Rating sensitivity to increased defaults (class A/class B/class C):

VZMT Series 2024-3

Current Ratings: 'AAAsf'/'AA+sf'/'AA-sf'

Increased default base case by 10%: 'AAAsf'/'AA+sf'/'A+sf';

Increased default base case by 25%: 'AAAsf'/'AA-sf'/'Asf';

Increased default base case by 50%: 'AAsf'/'Asf'/'BBB+sf';

Increased default base case by 100%: 'Asf'/'BBBsf'/'BB+sf'.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Stable to improved asset performance driven by stable delinquencies would lead to increasing CE levels and consideration for potential upgrades.

Rating sensitivity from decreased defaults (class A/class B/class C):

VZMT Series 2024-3

Current Ratings: 'AAAsf'/'AA+sf'/'AA-sf'

Decreased default base case by 20%: 'AAAsf'/'AAAsf'/'AA+sf'.

USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10

Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as prepared by Ernst & Young LLP on or about June 14, 2023. The third-party due diligence described in Form 15E focused on a comparison and recalculation of certain characteristics with respect to 1,000 randomly selected statistical receivables. Fitch considered this information in its analysis, and the findings did not have an impact on Fitch's analysis.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by clicking the link to the Appendix. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

Additional information is available on www.fitchratings.com

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