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

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the following Series 2020-1 Notes (the Notes) issued by Fairstone Financial Issuance Trust I as part of Morningstar DBRS' 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 Notes entered into the amortization period on October 20, 2023. During the amortization period, the sequential-pay structure and nonamortizing OC and cash reserve increase enhancement and provide a deleveraging structure as principal is repaid. The Final Maturity Date is October 20, 2039.

The rating confirmations are based on the performance of the transaction as of August 2024:

(1) The credit enhancement levels available to the Class A Notes, measured as a percentage of the outstanding Notes balance, have increased to 82.2% from 41.2% since initial issuance; to the Class B Notes, 57.0% from 28.6%; to the Class C Notes, 35.1% from 17.6%; and to the Class D Notes, 21.9% from 11.0%.

(2) The payment rate has been stable, averaging 4.8% over the last 12 months. The three-month average loss rate increased to 12.2% from 10.4% in August 2023. The three-month average net loss rate has been increasing, as the pool amortizes but remains within Morningstar DBRS' expectations. Based on the pool-weighted average interest rate of 27.9%, the Notes are supported by excess spread of approximately 24.0% before accounting for any credit losses.

(3) 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).

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

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

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.

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 Factors in Credit Ratings https://dbrs.morningstar.com/research/437781 (13 August 2024).

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

The principal methodology applicable to the credit ratings is Master Canadian Structured Finance Surveillance Methodology (06 August 2024) https://dbrs.morningstar.com/research/437538.

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

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 info-DBRS@morningstar.com.

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.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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

Rating Canadian Structured Finance Transactions (Appendix for Consumer Loans) (04 March 2024)
https://dbrs.morningstar.com/research/428847

Legal and Derivatives Criteria for Canadian Structured Finance (12 August 2024)
https://dbrs.morningstar.com/research/437761

Operational Risk Assessments for Canadian Structured Finance (06 August 2024)
https://dbrs.morningstar.com/research/437547

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/410863.

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