Fitch Ratings maintains the Rating Watch Negative on the class B and C notes of Conn's Receivables Funding 2018-A and on all outstanding ratings of Conn's Receivables Funding 2019-A and 2019-B due to the impacts of delinquency increases early in 2020 and the continued potential negative collateral performance caused by economic disruptions resulting from the coronavirus pandemic.
Fitch removes from Rating Watch Negative, affirms, and assigns a Stable Outlook to the ratings assigned to class A of Conn's Receivables Funding 2018-A and the class C of 2017-B. The affirmations reflect increased credit enhancement (CE) to the degree that additional performance impacts are not expected to impact timely interest or ultimate principal repayment under Fitch's stressed assumptions at current ratings.
RATING ACTIONS
ENTITY/DEBT RATING PRIOR
Conn's Receivables Funding 2017-B
C 20825AAC2
LT BBsf Affirmed BBsf
Conn's Receivables Funding 2018-A
A 20826JAA6
LT BBBsf Affirmed BBBsf
B 20826JAB4
LT BBsf Rating Watch Maintained BBsf
C 20826JAC2
LT Bsf Rating Watch Maintained Bsf
Conn's Receivables Funding 2019-A
A 20827DAA8
LT BBBsf Rating Watch Maintained BBBsf
B 20827DAB6
LT BBsf Rating Watch Maintained BBsf
C 20827DAC4
LT Bsf Rating Watch Maintained Bsf
Conn's Receivables Funding 2019-B
A 20824LAA3
LT BBBsf Rating Watch Maintained BBBsf
B 20824LAB1
LT BBsf Rating Watch Maintained BBsf
C 20824LAC9
LT Bsf Rating Watch Maintained Bsf
VIEW ADDITIONAL RATING DETAILS
TRANSACTION SUMMARY
In the months leading up to the pandemic, delinquencies had risen in all rated portfolios above expected levels. Delinquencies since the last review in April declined through servicing efforts and short-term pandemic stimulus, however the level of increase in delinquencies in early 2020 resulted in increased defaults. These trends were especially impactful to the more recent, less seasoned transactions, where Fitch's loss projections increased to nearly 30%, from the 25% original base case default rate.
To this point in the pandemic, collateral performance remained relatively stable as obligors took advantage of re-age and deferral programs offered by
The Rating Watch Negatives on the classes of
KEY RATING DRIVERS
Coronavirus Impact: The baseline (rating) scenario assumes an initial activity bounce in 3Q20 followed by a slower recovery trajectory from 4Q20 onward amid high unemployment rates and further pullback in private-sector investment. The
Subprime Collateral Quality: The
Rating Cap at 'BBBsf': Due to the subprime credit-risk profile of the customer base, higher loan defaults in recent years, the high concentration of receivables from
Adequate Servicing Capabilities:
RATING SENSITIVITIES
This section provides insight into the model-implied sensitivities the transaction faces when one assumption is modified, while holding others equal. The modeling process uses the modification of these variables to reflect asset performance in up and down environments. The results above should only be considered as one potential outcome, as the transactions are exposed to multiple dynamic risk factors. These results should not be used as an indicator of possible future performance.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Unanticipated increases in the frequency of defaults or write-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 investments. Decreased CE will increase the potential for negative rating actions, depending on the extent of the decline in coverage. While no modeling was conducted as part of this review, the below sensitivities were disclosed for each deal as of their last review.
Conn's Receivables Funding 2017-B (
Rating sensitivity to increased charge-off rate:
Class C current ratings (remaining defaults as a percent of current: 25.81%): 'BBsf';
Increase base case by 10%: 'BBsf';
Increase base case by 25%: 'B+sf',
Increase base case by 50%: less than 'CCCsf'.
Conn's Receivables Funding 2018-A (
Rating sensitivity to increased charge-off rate:
Class A, B, and C current ratings (remaining defaults as a percent of current: 27.66%): 'BBBsf', 'BBsf', 'Bsf';
Increase base case by 10% for class A, B, and C: 'BBBsf', 'BBsf', 'Bsf';
Increase base case by 25% for class A, B, and C: 'BBB-sf', 'BBsf', 'Bsf';
Increase base case by 50% for class A, B, and C: 'BB+sf', 'B+sf', less than 'CCCsf'.
Conn's Receivables Funding 2019-A (
Class A, B, and C current ratings (Remaining Defaults as a percent of current: 25.00%): 'BBBsf', 'BBsf', 'Bsf';
Default increase 10%: class A 'BBB-sf'; class B 'BBsf'; class C below 'CCCsf';
Default increase 25%: class A 'BB+sf'; class B 'B+sf'; class C below 'CCCsf';
Default increase 50%: class A 'BBsf'; class B below 'CCCsf'; class C below 'CCCsf';
Recoveries decrease to 0%: class A 'BBB-sf'; class B 'BBsf'; class C 'B-sf'.
Conn's Receivables Funding 2019-B (
Class A, B, and C current ratings (Remaining Defaults as a percent of current: 25.00%): 'BBBsf', 'BBsf', 'Bsf';
Default increase 10%: class A 'BBB-sf'; class B 'BBsf'; class C below 'CCCsf';
Default increase 25%: class A 'BB+sf'; class B 'B+sf'; class C below 'CCCsf';
Default increase 50%: class A 'BBsf'; class B below 'CCCsf'; class C below 'CCCsf';
Recoveries decrease to 0%: class A 'BBBsf'; class B 'BBsf'; class C 'Bsf'.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Decreases in the frequency of defaults or write-offs on customer accounts could produce loss levels lower than the base case and would likely result in increasing CE and the potential for positive rating actions, but only on the subordinated classes, because ratings on the senior classes are at the rating cap of 'BBBsf'.
For the ratings currently on Rating Watch Negative, Fitch does not currently anticipate developments in the short term that will lead to an upgrade. The main constraint to the ratings is the expected negative collateral performance caused by economic disruptions resulting from the coronavirus containment measures. Should economic disruptions caused by the coronavirus subside and the trust structures continue to deleverage, upgrades could be considered.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
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.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
Additional information is available on www.fitchratings.com
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