DBRS Morningstar Finalizes Provisional Ratings on Affirm Asset Securitization Trust 2021-A

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following notes issued by Affirm Asset Securitization Trust 2021-A (Affirm 2021-A):

-- $407,200,000 Class A Notes at AA (sf)
-- $30,270,000 Class B Notes at A (sf)
-- $21,010,000 Class C Notes at BBB (sf)
-- $22,510,000 Class D Notes at BB (sf)
-- $19,010,000 Class E Notes at B (sf)

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

(1) The transaction’s 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: January 2021 Update,” published on January 28, 2021. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, which have been regularly updated. The scenarios were last updated on January 28, 2021, and are reflected in DBRS Morningstar’s rating analysis.

(2) The assumptions consider the moderate macroeconomic scenario outlined in the commentary, with the moderate scenario serving as the primary anchor for current ratings. The moderate scenario factors in increasing success in containment during the first half of 2021, enabling the continued relaxation of restrictions.
-- DBRS Morningstar's projected losses include an additional stress due to the potential impact of the coronavirus. The DBRS Morningstar cumulative net loss (CNL) assumption is 5.56% 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 proposed ratings.
-- Transaction cash flows are sufficient to repay investors under all AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) stress scenarios in accordance with the terms of the Affirm 2021-A transaction documents.

(4) 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.
(5) The experience, sourcing, and servicing capabilities of Affirm, Inc. (Affirm).

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

(7) The ability of Nelnet Servicing to perform duties as a Backup Servicer.

(8) The annual percentage rate charged on the loans and CRB and Celtic Bank’s status as the true lender.
-- All loans in the initial pool included in Affirm 2021-A are originated by originating banks, CRB and Celtic Bank, New Jersey and Utah, respectively, state-chartered Federal Deposit Insurance Corporation-insured banks.
-- Loans originated by Affirm Loan Services LLC (ALS) utilize state licenses and registrations and interest rates are within each state's respective usury cap.
-- Loans originated by CRB are all within the New Jersey state usury limit of 30.00%.
-- Loans originated by Celtic Bank are all within the Utah state usury limit of 36.00%.
-- Loans may be in excess of individual state usury laws; however, CRB and Celtic Bank as the true lenders are 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) and Colorado) are either excluded from the pool or limited to each state's respective usury cap.
-- Loans originated to borrowers in Iowa will be eligible to be included in the Receivables to be transferred to the Trust. These loans will be originated under the ALS entity using Affirm’s state license in Iowa.
-- Loans originated to borrowers in West Virginia will be eligible to be included in the Receivables to be transferred to the Trust. Affirm has the required licenses and registrations that will enable it to operate the bank partner platform in West Virginia.
-- 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.

(9) Affirm 2021-A provides for Class E Notes with an assigned rating of B (sf). While the DBRS Morningstar “Rating U.S. Structured Finance Transactions” methodology does not set forth a range of multiples for this asset class for the B (sf) level, the analytical approach for this rating level is consistent with that contemplated by the methodology. The typical range of multiples applied in the DBRS Morningstar stress analysis for a B (sf) rating is 1.00 times (x) to 1.25x.

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

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating U.S. Structured Finance Transactions (November 6, 2020), 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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