KBRA assigns preliminary ratings to FREED ABS Trust 2020-3FP
NEW YORK–(COMMERCIAL THREAD) – Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to three categories of notes issued by FREED ABS Trust 2020-3FP (“FREED 2020-3FP”), a consumer loan asset-backed securities transaction.
The financial impact of COVID-19 has resulted in an economic downturn and high unemployment, which can negatively impact the performance of the transaction and unsecured consumer loans in general. Due to this risk, KBRA has increased its benchmark default assumptions for the pool in question in a manner consistent with recent industry portfolio reviews. A review in April resulted in six ratings of two FREED securitizations placed on Watch Developing or Downgrade. Since then, credit enhancement has increased for all of these securities and the underlying collateral has shown improved performance as the number of bad borrowers has declined. Of the six ratings, five were recently removed from Watch and confirmed. FREED ABS Trust 2020-1 Class C Note Supervisory Status has been changed to Development from demotion. For more information on reviews, see US Unsecured Consumer ABS Ratings Maintain Watch Report and Surveillance Report on Consumer Unsecured ABS Securities in the United States.
The guarantee of the FREED 2020-3FP agreement includes approximately $ 241.5 million in F + loans, as of June 30, 2020. Preliminary ratings reflect initial credit enhancement levels ranging from 53.00% for 18.50% Category A Notes for Category C Notes.
This transaction represents the seventh global securitization of ABS secured by unsecured consumer loans issued by Freedom Financial Asset Management. Freedom Financial Network (“FFN”), the parent company of FFAM, is a San Mateo, California-based company that operates in Tempe, Arizona. FFN was founded in 2002 and offers consumer debt settlement services such as: consumer education, installment loans and debt restructuring, through its three subsidiaries (“Freedom Debt Relief , LLC (“FDR”), FFAM and bills.com) and a fund (“Freedom Consumer Credit Fund” or “FCCF”). Since 2002, two private equity firms, Vulcan Capital and Stone Point Capital have invested in Pantheon Partners, LLC, the parent company of FFN.
KBRA applied its global ABS rating methodology for consumer loans and its global structured finance counterparty methodology as part of its analysis of the collateral pool underlying the transaction, the proposed capital structure and FFAM’s historical gross loss data. KBRA also conducted an operational assessment of FFAM, as well as a review of the legal structure of the transaction and transaction documents. KBRA will also review the operational agreements and legal opinions of the transaction prior to closing.
Further information on key credit considerations, sensitivity analyzes that examine the factors that may affect these credit ratings and how they might lead to an upgrade or downgrade, ESG factors (when they are a major driver of credit rating change or rating outlook) can be viewed in the full rating report mentioned above.
A description of all substantially significant sources that were used to prepare the credit rating and information about the method (s) (including significant models and sensitivity analyzes of relevant key rating assumptions, if any) used to determine the credit rating is available in the United States Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further information relating to this rating measure is available in the US Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures can be found at www.kbra.com.
KBRA is a full-service credit rating agency registered as an NRSRO with the United States Securities and Exchange Commission. In addition, KBRA is appointed as the designated rating agency by the Ontario Securities Commission for issuers of asset-backed securities to file a simplified prospectus or a shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a credit rating provider and is a credit rating agency (ARC) certified with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a rating agency.