NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to three classes of notes issued by Conn’s Receivables Funding Series (“CONN 2018-A”). The transaction represents the sixth securitization since 2015 collateralized by a pool of retail installment sales contracts and installment loans made to finance customer purchases of merchandise from one of Conn’s retail locations.
This is a $358.3 million ABS transaction and will include approximately $421.5 million of receivables at closing. The transaction has initial credit enhancement levels of 48.50% for the Class A Notes, 32.00% for the Class B Notes, and 15.50% for the Class C Notes. Credit enhancement consists of overcollateralization, excess spread, a reserve account funded at closing, and, in the case of the Class A Notes and Class B Notes, subordination of the junior class Notes.
Conn Appliances, Inc., a Texas corporation, is the sole direct subsidiary of Conn’s Inc., a publicly traded Delaware corporation. Conn’s has approximately 4,180 employees and operates 118 retail locations in 14 different states as of June 30, 2018. Conn Appliances’ operates through two segments, retail and credit, and provides customers the opportunity to purchase high-quality premium brand products across four primary categories: furniture and mattresses, appliances, electronics, and home office goods.
Conn’s targets under-banked, subprime consumers that typically have credit scores between 550 and 650 and have limited access to credit. Their core customer demographic typically earns between $25,000 and $60,000 in annual income, lives in densely populated neighborhoods, and usually shops to replace older household goods with newer items. The Company focuses on a high level of customer service driven by a trained and motivated staff, quick delivery and installation, and product repair or replacement services. By combining this high level of customer service with unique retail and credit offerings, Conn’s strategy is to drive repeat transactions. Additionally, the Company’s product selection is focused on higher priced items that generate higher margins and typically require some form of financing. In Q1 YTD FY 2019, Conn Appliances and its subsidiaries financed, on average, approximately 70.0% of its retail sales under its in-house financing program.
KBRA analyzed the transaction using the Global Consumer Loan ABS Rating Methodology published on November 28, 2017. KBRA’s consumer loan methodology incorporates an analysis of: (1) the underlying collateral pool, (2) the originator’s historical static pool data, segmented by characteristics including credit quality and product type, (3) the proposed capital structure for the transaction, (4) KBRA’s operational assessment of the originator and servicer and (5) the legal structure, transaction documents, and legal opinions.
In applying the methodology, KBRA analyzed Conn’s static pool data and the underlying collateral pool. KBRA also conducted an on-site operational review of Conn’s at its servicing center in Beaumont, TX. In addition, KBRA stressed the capital structure based on its stress case cash flow assumptions. KBRA will review the operative agreements and legal opinions for the transaction prior to closing.
For complete details on the analysis, please see KBRA’s Pre-Sale Report, Conn's Receivables Funding 2018-A, which was published today at www.kbra.com.
Preliminary Ratings Assigned: Conn’s Receivables Funding 2018-A
| Class | Preliminary Rating | Expected Initial Class Principal | ||||||
| A | BBB- (sf) | $219,200,000 | ||||||
| B | BB- (sf) | $69,550,000 | ||||||
| C | B- (sf) | $69,550,000 | ||||||
Representations & Warranties Disclosure
All Nationally Recognized Statistical Rating Organizations are required, pursuant to SEC Rule 17g-7, to provide a description of a transaction’s representations, warranties and enforcement mechanisms that are available to investors when issuing credit ratings. KBRA’s disclosure for this transaction can be found in the report available here.
Related Publication: (available at www.kbra.com)
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KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus, is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
