KBRA Assigns Preliminary Ratings to Conn’s Receivables Funding 2020-A

NEW YORK--()--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 ABS securitization since 2015 for Conn Appliances, Inc. (“Conn’s,” the “Originator,” the “Servicer,” or the “Company”) collateralized by a pool of retail installment sales contracts and installment loans (“Contracts”) made to finance customer purchases of merchandise from one of Conn’s retail locations. Conn Appliances, Inc., a Texas corporation, is the sole direct subsidiary of Conn’s Inc., a publicly traded Delaware corporation. Conn’s had over 4,000 employees and operated 141 retail locations in 14 different states as of July 31, 2020. 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.

The transaction has initial credit enhancement levels of 55.85% for the Class A Notes, 39.21% for the Class B Notes, and 23.15% for the Class C Notes. The initial overcollateralization amount is 22.65% of initial pool balance, building to a target of 34.00% of the outstanding pool balance.

The financial impact of COVID-19 has resulted in an economic slowdown and high unemployment, which can adversely impact the performance of the transaction and consumer loans in general. In considering this risk, KBRA applied additional stress scenarios by increasing its expected base case gross charge-off assumptions for this transaction. The assumption increase was derived from KBRA’s analysis of the relationship between the historical unemployment rate and annualized gross loss rates through the 2008- 2009 financial crisis for different types of lending products.

KBRA applied its Global Consumer Loan ABS Rating Methodology and Global Structured Finance Counterparty Methodology as part of its analysis of the transaction’s underlying collateral pool, the proposed capital structure and the originator’s historic gross loss data. KBRA also conducted an operational assessment of Conn’s as well as a review of the transaction’s legal structure and transaction documents. KBRA will also review the operative agreements and legal opinions for the transaction prior to closing.

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Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. 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. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.

Contacts

Analytical Contacts

Melvin Zhou, CFA, Senior Director (Lead Analyst)
+1 (646) 731-2412
mzhou@kbra.com

Frank Connor, Analyst
+1 (646) 731-2408
fconnor@kbra.com

Eric Neglia, Managing Director (Rating Committee Chair)
+1 (646) 731-2456
eneglia@kbra.com

Business Development Contact

Ted Burbage, Managing Director
+1 (646) 731-3325
tburbage@kbra.com

Contacts

Analytical Contacts

Melvin Zhou, CFA, Senior Director (Lead Analyst)
+1 (646) 731-2412
mzhou@kbra.com

Frank Connor, Analyst
+1 (646) 731-2408
fconnor@kbra.com

Eric Neglia, Managing Director (Rating Committee Chair)
+1 (646) 731-2456
eneglia@kbra.com

Business Development Contact

Ted Burbage, Managing Director
+1 (646) 731-3325
tburbage@kbra.com