DBRS Morningstar Assigns Provisional Ratings to Affirm Asset Securitization Trust 2023-X1

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following notes to be issued by Affirm Asset Securitization Trust 2023-X1 (Affirm 2023-X1):

-- $334,643,000 Class A Notes at AAA (sf)
-- $27,995,000 Class B Notes at AA (sf)
-- $23,439,000 Class C Notes at A (sf)
-- $20,616,000 Class D Notes at BBB (sf)

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

(1) The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary Baseline Macroeconomic Scenarios For Rated Sovereigns September 2023 Update, published on September 28, 2023. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse COVID-19 pandemic scenarios, which were first published in April 2020.

(2) The transaction’s form and sufficiency of available credit enhancement.
-- Subordination, overcollateralization, amounts held in the Reserve Account, and excess spread create credit enhancement levels that are commensurate with the proposed ratings.
-- Transaction cash flows are sufficient to repay investors under all AAA (sf), AA (sf), A (sf), and BBB (sf) stress scenarios in accordance with the terms of the Affirm 2023-X1 transaction documents.

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

(5) The experience, underwriting, and origination capabilities of Affirm Loan Services LLC (ALS), Cross River Bank (CRB), Celtic Bank, and Lead Bank.

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

(7) The annual percentage rate charged on the loans and CRB, Celtic Bank, and Lead Bank’s status as the true lender.
-- All loans in the initial pool included in Affirm 2023-X1 are originated by Affirm through its subsidiary ALS or by originating banks, CRB, Celtic Bank, and Lead Bank, New Jersey, Utah, and Missouri, respectively, state-chartered FDIC-insured banks.
-- Loans originated by 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 originated by Lead Bank are originated below 36.00%.
-- Loans may be in excess of individual state usury laws; however, CRB, Celtic Bank, and Lead Bank as the true lenders are able to export rates that preempt state usury rate caps.
-- The loan pool only includes loans made to borrowers in New York that have Contract Rates below the usury threshold.
-- 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.
-- Affirm has obtained a supervised lending license from Colorado, permitting Affirm to facilitate supervised loans in excess of the Colorado annual rate cap of 12%, outside of the Assurance of Discontinuance’s (AOD’s) safe harbor. All loans originated on the Affirm Platform in Colorado have Contract Rates below the usury threshold.
-- Loans originated to borrowers in Vermont above the state usury cap will be eligible to be included in the Receivables to be transferred to the Trust. Affirm has the required licenses and registrations in the state of Vermont.
-- Loans originated to borrowers in Connecticut with a Contract Rate above the state usury cap will be ineligible to be included in the Receivables to be transferred to the Trust until Affirm obtains the required licenses and registrations in the state of Connecticut. Inclusion of these Receivables will be subject to Rating Agency Condition.
-- 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) The legal structure and expected legal opinions that will 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.”

DBRS Morningstar’s credit rating on the securities referenced herein addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the rated notes are the related Interest Distribution Amount and the related Note Balance.

DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. The associated contractual payment obligation that is not a financial obligation is the portion of Note Interest Shortfall attributable to interest on unpaid Note Interest for each of the rated notes.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The DBRS Morningstar short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (July 4, 2023).

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

The principal methodology applicable to the rating is Rating U.S. Structured Finance Transactions at https://www.dbrsmorningstar.com/research/422592/rating-us-structured-finance-transactions (October 30, 2023).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

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

DBRS, Inc.
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New York, NY 10005 USA
Tel. +1 212 806-3277

 
The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

Global Methodology for Rating CLOs and Corporate CDOs (October 22, 2023)
https://www.dbrsmorningstar.com/research/422269/global-methodology-for-rating-clos-and-corporate-cdos

Rating U.S. Trade Receivables (October 5, 2023)
https://www.dbrsmorningstar.com/research/403636/rating-us-trade-receivables

Operational Risk Assessment for U.S. ABS Servicers (July 20, 2023)
https://www.dbrsmorningstar.com/research/417415/operational-risk-assessment-for-us-abs-servicers

Operational Risk Assessment for U.S. ABS Originators (July 20, 2023)
https://www.dbrsmorningstar.com/research/417416/operational-risk-assessment-for-us-abs-originators

Legal Criteria for U.S. Structured Finance (December 7, 2022)
https://www.dbrsmorningstar.com/research/407008/legal-criteria-for-us-structured-finance.

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