NEW YORK–(COMMERCIAL THREAD) – Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to three classes of notes issued by Conn’s Receivables Funding 2020-A (“CONN 2020-A”), a $ 303 million consumer loan ABS transaction.
This transaction represents the ninth securitization of ABS since 2015 for Conn Appliances, Inc. (“Conn’s”, the “Initiator”, the “Servicer” or the “Company”) secured by a pool of retail and sales contracts. Installment loans (“Contracts”) made to finance purchases of goods by customers at any of Conn’s outlets. Conn Appliances, Inc., a Texas company, is the only direct subsidiary of Conn’s Inc., a publicly traded Delaware company. Conn’s had over 4,000 employees and operated 141 outlets in 14 different states as of July 31, 2020. Conn Appliances operates through two segments, retail and credit, and offers customers the ability to purchase products from high quality premium brand in four main categories. : furniture and mattresses, appliances, electronics and home office items.
The transaction includes initial credit enhancement levels of 55.85% for Class A Notes, 39.21% for Class B Notes and 23.15% for Class C Notes. overcollateralisation is 22.65% of the initial pool balance, reaching a target of 34.00% of the outstanding pool balance.
The financial impact of COVID-19 has resulted in an economic downturn and high unemployment, which can negatively impact the performance of the transaction and consumer loans in general. In reviewing this risk, KBRA applied additional stress scenarios by increasing its expected baseline gross expense assumptions for this transaction. The increase in the assumption was derived from KBRA’s analysis of the relationship between historical unemployment rate and annualized gross loss rates during the 2008-2009 financial crisis for different types of loan products.
KBRA applied its global consumer loan ABS rating methodology and global structured finance counterparty methodology as part of its analysis of the collateral pool underlying the transaction, the proposed capital structure and historical data. of the initiator’s gross loss. KBRA also conducted an operational assessment of Conn’s as well as a review of the legal structure of the transaction and transaction documents. KBRA will also review the operational agreements and legal opinions of the transaction prior to closing.
Further information on key credit considerations, sensitivity analyzes that examine the factors that may affect these credit ratings and how they might lead to an upgrade or downgrade, and ESG factors (where they are a major driver of change in credit rating or rating outlook) can be viewed in the full rating report mentioned above.
A description of all substantially significant sources that were used to prepare the credit rating and information about the method (s) (including significant models and sensitivity analyzes of the relevant key rating assumptions, if any) used to determine the credit rating is available in the United States Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further information relating to this rating measure is available in the US Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures can be found at www.kbra.com.
KBRA is a full-service credit rating agency registered as an NRSRO with the United States Securities and Exchange Commission. In addition, KBRA is appointed as the designated rating agency by the Ontario Securities Commission for issuers of asset-backed securities to file a simplified prospectus or a shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a credit rating provider and is a credit rating agency (ARC) certified with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a rating agency.