Fitch Ratings has affirmed all notes of Conn's Receivables Funding 2021-
The affirmations reflect increased credit enhancement (CE) since closing and the trust collateral performing as expected since closing. For the class B and C notes, the Positive Outlook reflects this CE build as well as the expected amortization of the class B and C notes, further increasing CE.
RATING ACTIONS
Entity / Debt
Rating
Prior
Conns Receivables Funding 2021-
A 20825GAA3
LT
BBBsf
Affirmed
BBBsf
B 20825GAB1
LT
BBsf
Affirmed
BBsf
C 20825GAC9
LT
Bsf
Affirmed
Bsf
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VIEW ADDITIONAL RATING DETAILS
KEY RATING DRIVERS
Subprime Collateral Quality: At closing, the
Rating Cap at 'BBBsf': The rating cap reflects the subprime credit-risk profile of the customer base, the high concentration of receivables from
Payment Structure-Sufficient CE: CE has built for all notes to a degree sufficient to cover Fitch's stressed cash flow assumptions at the requisite rating levels. No triggers have been breached for this transaction, allowing each class to receive pro-rata shares of principal allocations, and the turbo nature of the transaction has increased the CE for all notes.
Adequate Servicing Capabilities:
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Unanticipated increases in the frequency of defaults or chargeoffs could produce loss levels higher than the base case, and would likely result in declines of CE and remaining net 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 by an additional 10% and 25%, and examining the rating implications. These increases of the base case default rate are intended to provide an indication of the rating sensitivity of the notes to unexpected deterioration of performance. A more prolonged disruption from the pandemic is accounted for in the downside stress of a 50% increase in the base case default rate.
Default increase 10%: class A 'BBBsf'; class B 'BBsf'; class C 'Bsf';
Default increase 25%: class A 'BBBsf'; class B 'BBsf'; class C 'Bsf';
Default increase 50%: class A 'BBBsf'; class B 'BBsf'; class C 'CCCsf';
During the sensitivity analysis, Fitch examines the magnitude of the multiplier compression by projecting the expected cash flows and loss coverage levels over the life of investments under higher than the initial base case default assumptions. Fitch models cash flows with the revised default estimates while holding constant all other modeling assumptions.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Stable to improved asset performance driven by stable delinquencies and defaults would lead to increasing CE levels and consideration for potential upgrades for notes currently rated below the 'BBBsf' cap. Fitch conducted a sensitivity analyses by decreasing the base case default rate for each trust by 10%, 25% and 50%, resulting in the below model implied ratings:
Default decrease 10%: class A 'BBBsf'; class B 'BBBsf'; class C 'BB+sf';
Default decrease 25%: class A 'BBBsf'; class B 'BBBsf'; class C 'BBBsf';
Default decrease 50%: class A 'BBBsf'; class B 'BBBsf'; class C 'BBBsf'.
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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