Kroll Bond Rating Agency, LLC (KBRA) assigns preliminary ratings to four classes of notes issued by Aqua Finance Trust 2020-A ("Aqua 2020-A"), a consumer loan asset-backed securities transaction. The transaction is collateralized by a pool of retail installment sale contracts and agreements ("Contracts") primarily used by consumers to purchase water treatment equipment or make home improvements.
The collateral in the Aqua 2020-A transaction includes approximately $303.1 million of loans as of the July 31, 2020 statistical cutoff date. The transaction includes a six-month prefunding period during which additional collateral may be funded up to approximately 30% of the total receivables. The assets purchased from the prefunding account must comply with certain eligibility criteria. The preliminary ratings reflect the initial credit enhancement levels ranging from 30.30% for the Class A notes to 4.85% for the Class D notes.
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 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 recent portfolio reviews of the sector. A review conducted in April 2020 resulted in the Aqua Finance Trust 2019-A ("Aqua 2019-A") Class A, Class B, Class C and Class D Notes being placed on Watch Downgrade. The Watch Status was maintained in a more recent review in July 2020.
Aqua was founded in 1985, incorporated on January 15, 1988 and is a consumer finance company operating in all 50 states. Founder Robert Chadwell, who previously served as the Company’s President and Chief Executive Officer ("CEO"), stepped down in October 2019, but continues to hold the position of Chairman of the Board of Directors of Aqua. The Company’s new President and CEO, Rich Morrin, most recently held the position of President of the Chrysler division of Santander Consumer USA.
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 and the proposed capital structure. KBRA also conducted an operational assessment of Aqua, 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.
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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