Fitch Ratings expects to assigns the following ratings to Conn's
Receivables Funding 2016-B, LLC (Conn's 2016-B), which consists of
notes backed by retail loans originated and serviced by Conn
Appliances, Inc. (Conn's):
--$391,840,000 class A notes 'BBBsf(EXP)'; Outlook Stable;
--$111,960,000 class B notes 'BBsf(EXP)'; Outlook Stable;
--$48,980,000 class C notes 'Bsf(EXP)'; Outlook Stable;
--class R notes 'NR'.
KEY RATING DRIVERS
Collateral Quality: The 2016-B trust pool consists of 100%
fixed-rate consumer loans originated and serviced by Conn's
Appliances, Inc. The pool exhibits a weighted average FICO score of
608 and a weighted average borrower rate of 21.52%.
The base case default rate for the 2016-B pool is assumed to be
24.75% and Fitch applied a 2.2x stress at the 'BBBsf' level,
reflecting the high absolute value of the historical defaults,
along with the variability of default performance in recent years
and the high geographic concentration.
Rating Cap at 'BBBsf': Due to higher loan defaults in recent
years, management changes at Conn's, and the credit risk profile of
Conn's, Fitch placed a rating cap on this transaction at the
'BBBsf' category.
Dependence on Trust Triggers: The trust depends on the three
trust triggers -- the Cumulative Net Loss Trigger, the Annualized
Net Loss Trigger, and the Recovery Trigger -- in order to ensure
the payments due on the notes during times of degrading collateral
performance.
Liquidity Support: Liquidity support is provided by reserve
account, which will be fully funded at closing at 1.50% of the
initial pool balance. The reserve account will step down to 1.25%
of the original collateral balance once overcollateralization (OC)
reaches 30% of the current collateral balance and will step down to
1.00% of the original collateral balance once OC reaches 40% of the
current collateral balance.
Servicing Capabilities: Conn Appliances, Inc. has a long track
record as an originator, underwriter, and servicer. The credit risk
profile of the entity is mitigated by the backup servicing provided
by Systems & Services Technologies, Inc. (SST).
RATING SENSITIVITIES
Unanticipated increases in the frequency of defaults or
chargeoffs on customer accounts could produce loss levels higher
than the base case and would likely result in declines of credit
enhancement (CE) and remaining loss coverage levels available to
the investments. Decreased CE may make certain ratings on the
investments susceptible to potential negative rating actions,
depending on the extent of the decline in coverage.
Fitch conducts sensitivity analysis by stressing a transaction's
initial base case chargeoff assumption by 1.5x, 2.0x, and 2.5x, and
examining the rating implications. The 1.5x, 2.0x, and 2.5x
increase of the base case chargeoffs are intended to provide an
indication of the rating sensitivity of the notes to unexpected
deterioration of a transaction's performance.
During the sensitivity analysis, Fitch examines the magnitude of
the multiplier compression by projecting the expected cash flows
and loss coverage levels over the life of investments under higher
than the initial base case chargeoff assumptions. Fitch models cash
flows with the revised chargeoff estimates while holding constant
all other modeling assumptions.
Under the 1.5x base case stress scenario, class A notes would
retain the current rating, while class B notes would experience a
one-notch downgrade. Under the 2.0x base case stress scenario,
class A notes would be downgraded one notch, while class B notes
would downgraded one category to 'Bsf'. Under the 2.5x base case
stress scenario, class A notes would be downgraded to 'B+sf', and
class B and class C notes would fall to 'CCCsf'.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties
and enforcement mechanisms ("RW&Es") that are disclosed in the
offering document and which relate to the underlying asset pool is
available by accessing the appendix referenced under "Related
Research" below. The appendix also contains a comparison of these
RW&Es to those Fitch considers typical for the asset class as
detailed in the Special Report titled 'Representations, Warranties
and Enforcement Mechanisms in Global Structured Finance
Transactions,' dated May 31, 2016.
Additional information is available at www.fitchratings.com.
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds
(pub. 01 Sep 2016)https://www.fitchratings.com/site/re/886006
Criteria for Interest Rate Stresses in Structured Finance
Transactions and Covered Bonds (pub. 17 May
2016)https://www.fitchratings.com/site/re/879815
Criteria for Rating Caps and Limitations in Global Structured
Finance Transactions (pub. 16 Jun
2016)https://www.fitchratings.com/site/re/882401
Global Consumer ABS Rating Criteria (pub. 19 Aug
2016)https://www.fitchratings.com/site/re/886466
Global Structured Finance Rating Criteria (pub. 27 Jun
2016)https://www.fitchratings.com/site/re/883130
Related Research
Conn's Receivables Funding 2016-B, LLC (US
ABS)https://www.fitchratings.com/site/re/888228
Conn's Receivables Funding 2016-B, LLC
Appendixhttps://www.fitchratings.com/site/re/888236
Additional Disclosures
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Solicitation
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Endorsement
Policyhttps://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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Fitch RatingsHarry Kohl, +1-212-908-0837DirectorFitch Ratings,
Inc.33 Whitehall StreetNew York, NY 10004orSecondary Analyst:Herman
Poon, +1-212-908-0847Senior DirectororCommittee Chairperson:Kevin
Corrigan, +1-212-908-9156Senior DirectororMedia Relations:Sandro
Scenga, +1-212-908-0278New Yorksandro.scenga@fitchratings.com