DBRS Morningstar Finalizes Provisional Ratings on Affirm Asset Securitization Trust 2020-A

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following notes issued by Affirm Asset Securitization Trust 2020-A (Affirm 2020-A):

-- $329,960,000 Class A Notes at A (sf)
-- $16,200,000 Class B Notes at BBB (sf)
-- $22,130,000 Class C Notes at BB (sf)

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

(1) The transaction assumptions consider DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the Coronavirus Disease (COVID-19), available in its commentary “Global Macroeconomic Scenarios: July Update,” published on July 22, 2020. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020. The scenarios were updated on July 22, 2020, and are reflected in DBRS Morningstar’s rating analysis.

(2) The assumptions consider the moderate macroeconomic scenario outlined in the commentary (the moderate scenario serving as the primary anchor for current ratings). The moderate scenario assumes some success in containment of the coronavirus within Q2 2020 and a gradual relaxation of restrictions, enabling most economies to begin a gradual economic recovery in Q3 2020.
-- DBRS Morningstar's projected losses include an additional stress due to the potential impact of the coronavirus. The DBRS Morningstar cumulative net loss assumption is 6.58% based on the worst-case loss pool constructed giving consideration to the concentration limits present in the structure.

(3) The transaction’s form and sufficiency of available credit enhancement.
-- Subordination, overcollateralization, amounts held in the Reserve Account, the Yield Supplement Overcollateralization Amount, and excess spread create credit enhancement levels that are commensurate with the ratings.

(4) Transaction cash flows are sufficient to repay investors under all A (sf), BBB (sf), and BB (sf) stress scenarios in accordance with the terms of the Affirm 2020-A transaction documents.

(5) Inclusion of structural elements featured in the transaction such as the following:
-- Eligibility criteria for receivables that are permissible in the transaction.
-- Concentration limits designed to maintain a consistent profile of the receivables in the pool.
-- Performance-based Amortization Events that, when breached, will end the revolving period and begin amortization.

(6) The experience and sourcing capabilities of Affirm, Inc. (Affirm).

(7) The experience, underwriting, and origination capabilities of Cross River Bank (CRB).

(8) Nelnet Servicing, LLC’s ability to perform duties as a Backup Servicer.

(9) The annual percentage rate charged on the loans and CRB’s status as the true lender.
-- All loans in the initial pool included in Affirm 2020-A are originated by CRB, a New Jersey state-chartered Federal Deposit Insurance Corporation-insured bank.
-- Loans originated by CRB are all within the New Jersey state usury limit of 30.00%.
-- Loans may be in excess of individual state usury laws; however, CRB as the true lender is able to export rates that preempt state usury rate caps.
-- Loans originated to borrowers in states with active litigation (Second Circuit (New York, Connecticut, Vermont), Colorado, and West Virginia) are either excluded from the pool or limited to each state's respective usury cap.
-- Under the loan sale agreement, Affirm is obligated to repurchase any loan if there is a breach of representation and warranty that materially and adversely affects the interests of the purchaser.

(10) The legal structure and legal opinions that address the true sale of the unsecured consumer loans, the nonconsolidation of the trust, that the trust has a valid perfected security interest in the assets, and the consistency with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance.”

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

The principal methodology is Rating U.S. Structured Finance Transactions (November 6, 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.dbrsmorningstar.com or contact us at [email protected].

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