Fitch Ratings has upgraded the outstanding class C notes of Conn's Receivables Funding 2021-
The upgrade reflects increased credit enhancement (CE) since closing on account of the class A and B notes paying in full and the class C notes now receiving principal payments. Despite the lifetime base case default assumption revision to 30% from 25% assigned at closing the CE provides sufficient support to the outstanding class C notes at the upgraded rating level. The Rating Outlook is Stable following the upgrade.
RATING ACTIONS
Entity / Debt
Rating
Prior
Conns Receivables Funding 2021-
C 20825GAC9
LT
BBsf
Upgrade
Bsf
Page
of 1
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; higher loan defaults in the years prior to the coronavirus pandemic; the high concentration of receivables from
Payment Structure-Sufficient CE: CE has built for class C notes to a degree sufficient to cover Fitch's stressed cash flow assumptions at the upgraded rating levels. As of the latest payment date, the transaction was in breach of the cumulative net loss trigger resulting is sequential principal distribution. This has led to the senior notes being completely paid-off and only class C notes outstanding. The turbo nature of the transaction has also increased the CE for the 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 C 'BBsf';
Default increase 25%: class C 'B+sf';
Default increase 50%: class C 'B-sf'.
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 C 'BB+sf';
Default decrease 25%: class C 'BBBsf';
Default decrease 50%: class C 'BBBsf'.
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
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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