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Conn's ups credit enhancement on latest consumer loan ABS

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Conn’s has increased the credit enhancement on its latest consumer loan securitization to account for rising losses on its managed portfolio, according to rating agency presale reports.

Conn’s has approximately 4,180 employees and operates 118 retail locations in 14 different states. It operates through two segments, retail and credit, and provides customers the opportunity to purchase high-quality premium brand products across four primary categories: furniture and mattresses, appliances, electronics, and home office goods.

Losses have been increasing among 2017 and 2018 originations relative to most of the previous originations, which the company attributes, in part, to greater accrued interest on charged-off loans as a result of the higher interest rates charged to borrowers through its expansion of the direct loan product and a longer charge-off policy.

Kroll expects losses on the $358.3 million Conn’s Receivables Funding 2018-A to reach 22%-24%, in its base-case scenario.

Fitch Rating sees even higher losses of 25%, though that is down slightly from its forecast of 25.25% for Conn’s previous deal, completed in 2017.

As of the June 30, 2018 cutoff date, the pool consisted of 136,065 loans, with an average balance of $3,098, average original FICO score of 608 and weighted annual percentage rate of 28.94%. The APR has increased since prior deals due to state licensing changes in Texas. The pool has a weighted average original term of 35 months and has been seasoned for less than four months on average.

As with previous securitization, there will be three tranches of rated notes Credit enhancement has been increased on the senior Class A notes, which are rated BBB by both Fitch and Kroll, 48.5% from 47.5 on the 2017 deal and 45.5% on the 2016 deal.

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Consumer ABS Subprime lending