DBRS Morningstar Confirms Ratings on Fairstone Financial Issuance Trust I, Series 2020-1

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following Series 2020-1 Notes (the Notes) issued by Fairstone Financial Issuance Trust I as part of DBRS Morningstar’s continued efforts to provide timely credit rating opinions and increased transparency to market participants:

-- Series 2020-1 Class A Notes at AA (sf)
-- Series 2020-1 Class B Notes at A (sf)
-- Series 2020-1 Class C Notes at BBB (high) (sf)
-- Series 2020-1 Class D Notes at BBB (sf)

The Notes are backed by a diversified pool of Canadian, fixed-rate, amortizing, near- and nonprime, unsecured, and secured consumer loans. Secured loans are secured by a second-ranking (and, in certain limited instances, a first-ranking) priority mortgage or immovable hypothec on real properties located across Canada. The Revolving Period Termination Date is October 20, 2023, and the Final Maturity Date is October 20, 2039.

The rating confirmations are based on the performance of the transaction as of August 2022:

(1) The level of credit enhancement (CE) provided by subordination (30.2%, 17.6%, and 6.6% of the current note balance for Class A, Class B, and Class C Notes, respectively), overcollateralization (OC) of 10.4%, and cash reserve of 1.1% of the current note balance is at its required level and continues to provide support for the ratings assigned.

(2) At the end of the revolving period, the sequential-pay structure and nonamortizing OC and cash reserve increase enhancement and provide a deleveraging structure as principal is repaid during the amortization period.

(3) The payment rate has been stable, averaging 5.8% over the last 12 months. The three-month average net loss rate has increased to 9.3% from 6.4% in August 2021. Based on the pool-weighted average interest rate of 29.8%, the Notes are supported by excess spread of approximately 26.5% before accounting for any credit losses.

(4) The portfolio of receivables is well diversified by province, product type (unsecured homeowner, unsecured nonhomeowner, and secured loans), and obligor risk rank (Excellent, Good, and Average), and new loans added to the pool are subject to eligibility criteria and concentration limits.

(5) The considerable experience of the Seller and Servicer, Fairstone Financial Inc., with respect to originating, underwriting, and servicing in the consumer loan industry.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/ (May 17, 2022).

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is Master Canadian Structured Finance Surveillance Methodology (June 7, 2022) ,which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

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.

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

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