Fitch Ratings has upgraded the outstanding class C notes of Conn's Receivables Funding 2021-A, LLC (Conn's 2021-A) to 'BBsf' from 'Bsf'.

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-A, LLC

C 20825GAC9

LT

BBsf

Upgrade

Bsf

Page

of 1

VIEW ADDITIONAL RATING DETAILS

KEY RATING DRIVERS

Subprime Collateral Quality: At closing, the Conn's 2021-A receivables pool had a weighted average FICO score of 613 and 8.1% of the loans had scores below 550 or no score. For the current review, given the cumulative gross defaults have reached 25.7%, Fitch has revised the lifetime base case default assumption to 30% from 25% based on projected performance for the remaining life of the loans. Fitch applied 1.5x stress to the 30% default assumption at the 'BBsf' level. The default multiple reflects the high absolute value of the historical defaults, the variability of default performance in recent years and the high geographical concentration of the portfolio.

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 Texas; the disruption in servicing in 2020 contributing to increased defaults in impacted securitized vintages; and servicing collection risk, albeit reduced in recent years, due to a portion of customers making in-store payments.

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: Conn Appliances, Inc. (Conn's) has a long track record as an originator, underwriter and servicer. The credit-risk profile of the entity is mitigated by the backup servicing provided by Systems & Services Technologies, Inc. (SST), which has committed to a servicing transition period of 30 days. Fitch considers all parties to be adequate servicers for this pool at the current rating level. Fitch evaluated the servicers' business continuity plan as adequate to minimize disruptions in the collection process during the pandemic.

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

(C) 2023 Electronic News Publishing, source ENP Newswire