DBRS Morningstar Finalizes Provisional Ratings on Arivo Acceptance Auto Loan Receivables Trust 2019-1

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes issued by Arivo Acceptance Auto Loan Receivables Trust 2019-1 (the Issuer):

-- $141,743,000 Class A at A (sf)
-- $18,147,000 Class B at BBB (sf)
-- $6,103,000 Class C at BB (sf)

The ratings are based on DBRS Morningstar’s review of the following analytical considerations:

-- Transaction capital structure, proposed ratings and form and sufficiency of available credit enhancement. Credit enhancement is in the form of overcollateralization (OC), subordination, amounts held in the reserve fund and excess spread. Credit enhancement levels are sufficient to support the DBRS Morningstar expected cumulative net loss (CNL) assumption under various stress scenarios. Please see the Credit Enhancement section in the related rating report for more details.

-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the ratings address the timely payment of interest on a monthly basis and principal by the legal final maturity date. DBRS Morningstar assumptions for cash flow modeling are described more fully under the Cash Flow Analysis section in the related rating report.

-- DBRS Morningstar has performed an operational review of Arivo Acceptance, LLC (Arivo) and considers the entity to be an acceptable originator and servicer of subprime and non-prime auto loans. The transaction structure provides for a transition of servicing in the event a Servicer Termination Event occurs. Wilmington Trust National Association (rated AA (low) with a Stable trend by DBRS Morningstar) is the Backup Servicer, and Systems & Services Technologies, Inc. is the Initial Successor Servicer.

-- The credit quality of the collateral and performance of Arivo’s auto loan portfolio. The weighted-average (WA) remaining life of the collateral pool is 62 months. The non-zero WA FICO score of the pool is 594. The transaction structure includes a Pre-Funding Account in the amount of $20 million. DBRS Morningstar considered the parameters surrounding the additional receivables that can be purchased during the 60-day pre-funding period and believes the characteristics of the receivables after giving effect to the addition of any pre-funded receivables will not result in the final receivables pool credit characteristics differing materially from those of the receivables as of the Initial Cut-Off Date.

-- Loss performance for Arivo’s loan originations is limited. As a result, in addition to Arivo’s loan performance data, DBRS Morningstar incorporated proxy analysis to help determine an expected CNL for the pool. The proxy analysis evaluated certain demographic characteristics of Arivo’s originations relative to those of other issuers where DBRS Morningstar possessed more extensive performance history.

-- The legal structure and presence of legal opinions that address the true sale of the assets to the Issuer, the non-consolidation of the special-purpose vehicle with Arivo, that the Trust has a valid first-priority security interest in the assets and the consistency with DBRS Morningstar’s “Legal Criteria for U.S. Structured Finance” methodology.

This transaction is being structured as a public transaction offering three classes of notes: Class A, Class B and Class C. Initial Class A credit enhancement of 16.25% includes a reserve account (1.00% of the initial pool balance, funded at inception and non-declining); OC of 0.75%; and subordination of 14.50% of the initial pool balance. Initial Class B enhancement of 5.40% includes a 1.00% reserve account, 0.75% OC and 3.65% subordination. Initial Class C enhancement of 1.75% includes OC of 0.75% and a reserve account of 1.00%. OC will build to a target of 14.00% of the pool balance, based on excess spread available in the structure, and is subject to a floor of 1.00% of the initial pool balance. The receivables securitized are subprime auto loan contracts secured by new and used automobiles, light-duty trucks and vans.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating U.S. Retail Auto Loan Securitizations, which can be found on dbrs.com under Methodologies & Criteria.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].

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