Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to three classes 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 slowdown and high unemployment, which can adversely impact the performance of the transaction and unsecured consumer loans in general. Owing to this risk, KBRA increased its base case default assumptions for the subject pool in a manner that was consistent with a recent portfolio reviews of the sector. A review conducted in April resulted in six ratings from two FREED securitizations being placed on Watch Developing or Downgrade. Since that time, credit enhancement has increased for all of those securities and the underlying collateral demonstrated improved performance as the numbers of impaired borrowers declined. Of the six ratings, five were recently removed from Watch and affirmed. The Watch Status for the Class C notes from FREED ABS Trust 2020-1 was changed to Developing from Downgrade. For more information on the reviews see U.S. Unsecured Consumer ABS Ratings Maintains Watch Report and U.S. Unsecured Consumer ABS Securities on Watch Report.
The collateral in the FREED 2020-3FP deal includes approximately $241.5 million of F+ loans, as of the June 30, 2020 cutoff date. The preliminary ratings reflect the initial credit enhancement levels ranging from 53.00% for the Class A notes to 18.50% for the Class C notes.
This transaction represents the seventh overall ABS securitization collateralized by unsecured consumer loans originated through Freedom Financial Asset Management. Freedom Financial Network ("FFN"), the parent company to FFAM, is a San Mateo, CA based company with operations in Tempe, AZ. FFN was founded in 2002 and offers consumer debt settlement services such as: consumer education, installment loans, and debt restructuring, through its three subsidiary companies ("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 which is the parent holding company of FFN.
KBRA applied its Global Consumer Loan ABS Rating Methodology and Global Structured Finance Counterparty Methodology as part of its analysis of the transaction’s underlying collateral pool, 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 transaction’s legal structure and transaction documents. KBRA will also review the operative agreements and legal opinions for the transaction prior to closing.
- FREED ABS Trust 2020-3FP KCAT
- Global Consumer Loan ABS Rating Methodology
- Global Structured Finance Counterparty Methodology
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
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