Morningstar DBRS Assigns Provisional Credit Ratings to Arivo Acceptance Auto Loan Receivables Trust 2024-1

DBRS, Inc. (Morningstar DBRS) assigned provisional ratings to the following classes of notes issued by Arivo Acceptance Auto Loan Receivables Trust 2024-1 (ARIVO 2024-1 or the Issuer):

-- $108,740,000 Class A Notes at AA (sf)
-- $24,920,000 Class B Notes at A (sf)
-- $14,270,000 Class C Notes at BBB (sf)
-- $27,840,000 Class D Notes at BB (sf)

CREDIT RATING RATIONALE/DESCRIPTION

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

(1) 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 cash collateral account, and excess spread. Credit enhancement levels are sufficient to support the Morningstar DBRS-projected cumulative net loss (CNL) assumption under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested. For this transaction, the ratings address the payment of timely interest on a monthly basis and principal by the legal final maturity date.

(2) The Morningstar DBRS CNL assumption is 18.80% based on the cut-off date pool composition.

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

(4) Morningstar DBRS performed an operational review of Arivo Acceptance, LLC (Arivo) and considers the entity an acceptable originator and servicer of subprime and nonprime 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 Negative trend by Morningstar DBRS) is the Backup Servicer, and Systems & Services Technologies, Inc. is the contracted subagent to perform the Backup Servicer's duties.

(5) The credit quality of the collateral and performance of Arivo’s auto loan portfolio. The weighted-average (WA) remaining term of the Initial Receivables is approximately 63.0 months with WA seasoning of approximately 8.3 months. Approximately 5.47% of the pool was originated prior to 2022. The nonzero WA credit score of the pool is 565 and the WA annual percentage rate is 18.52%.

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

(7) The legal structure and expected presence of legal opinions, which will address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with Arivo, that the trust has a valid first-priority security interest in the assets, and consistency with the Morningstar DBRS “Legal Criteria for U.S. Structured Finance.”

The rating on the Class A Notes reflects 46.90% of initial hard credit enhancement provided by subordinated notes in the pool (33.35%), OC (12.55%), and cash collateral account (1.00% of the aggregate pool balance, including the initial pool balance plus the subsequent receivable balance, and nondeclining). The ratings on the Class B, C, and D Notes reflect 34.50%, 27.40% and 13.55% of initial hard credit enhancement, respectively.

Morningstar DBRS’ credit ratings on the Class A, Class B, Class C, and Class D Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the Note Interest and Note Principal Balance for each of the Class A, Class B, Class C, and Class D Notes.

Morningstar DBRS’ credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. Contractual payment obligations that are not financial obligations are the accrued interest on the overdue interest on each of the Class A, Class B, Class C, and Class D Notes.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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 Morningstar DBRS 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, AND 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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024; https://dbrs.morningstar.com/research/427030).

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

The principal methodology applicable to the credit ratings is Rating U.S. Retail Auto Loan Securitizations (May 9, 2023; https://dbrs.morningstar.com/research/413731/rating-us-retail-auto-loan-securitizations)

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

The credit rating was initiated at the request of the rated entity.

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

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

This is a solicited credit rating.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277

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

Rating U.S. Structured Finance Transactions (February 22, 2024), https://dbrs.morningstar.com/research/428503/rating-us-structured-finance-transactions

Operational Risk Assessment for U.S. ABS Servicers (February 22, 2024), https://dbrs.morningstar.com/research/428505/operational-risk-assessment-for-us-abs-servicers

Operational Risk Assessment for U.S. ABS Originators (February 22, 2024), https://dbrs.morningstar.com/research/428504/operational-risk-assessment-for-us-abs-originators

Legal Criteria for U.S. Structured Finance (December 7, 2023), https://dbrs.morningstar.com/research/425081

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.