DBRS Morningstar Assigns Provisional Ratings to Arivo Acceptance Auto Loan Receivables Trust 2021-1

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of notes to be issued by Arivo Acceptance Auto Loan Receivables Trust 2021-1 (the Issuer):

-- $165,719,000 Class A at A (sf)
-- $12,523,000 Class B at BBB (sf)
-- $6,213,000 Class C at BB (sf)
-- $8,543,000 Class D at B (sf)

The provisional ratings are based on DBRS Morningstar’s review of the following analytical considerations:

(1) Transaction capital structure, proposed ratings, and form and sufficiency of available credit enhancement.
-- Credit enhancement in the form of overcollateralization, subordination, amounts held in the cash collateral account, and excess spread. Credit enhancement levels are sufficient to support the DBRS Morningstar expected cumulative net loss (CNL) assumption under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For the transaction, the ratings address the timely payment of interest on a monthly basis and principal by the legal final maturity date. DBRS Morningstar assumptions for cash flow modeling are described more fully under the Cash Flow Analysis section of the corresponding report.

(2) DBRS Morningstar's projected losses include the assessment of the impact of the Coronavirus Disease (COVID-19). While considerable uncertainty remains with respect to the intensity and duration of the pandemic, DBRS Morningstar-projected CNL includes an assessment of the expected impact on consumer behavior.

(3) DBRS Morningstar adjusted the expected loss assumption in consideration of the period of stress related to the coronavirus pandemic. This adjustment takes into account DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the coronavirus, available in its commentary “Global Macroeconomic Scenarios: December Update,” published on December 2, 2020. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, and they have been regularly updated. The scenarios were last updated on December 2, 2020, and are reflected in DBRS Morningstar’s rating analysis. The assumptions consider the moderate macroeconomic scenario outlined in the commentary, with the moderate scenario serving as the primary anchor for current ratings. The moderate scenario factors in increasing success in containment during the first half of 2021, enabling the continued relaxation of restrictions.

(4) DBRS Morningstar has performed an operational review of Arivo Acceptance, LLC (Arivo) and considers the entity to be an acceptable originator and servicer of subprime and nonprime auto loans. The transaction structure provides for a transition of servicing in the event a Servicer Termination Event occurs. Wilmington Trust National Association (rated AA (low) with a Negative trend by DBRS Morningstar) is the Backup Servicer, and Systems & Services Technologies, Inc. is the contracted subagent to perform the backup servicer's duties.

(5) The credit quality of the collateral and performance of Arivo’s auto loan portfolio. The weighted-average (WA) remaining term of the Initial Receivables is approximately 66 months with WA seasoning of approximately five months. The nonzero WA credit score of the pool is 558 and the WA annual percentage rate is 16.07%.

(6) Loss performance for Arivo’s loan originations is limited. As a result, in addition to Arivo’s loan performance data, DBRS Morningstar incorporated proxy analysis to help determine the timing of expected losses for the pool. The proxy analysis evaluated certain demographic characteristics of Arivo’s originations relative to those of other issuers where DBRS Morningstar possessed more extensive performance history.

(7) DBRS Morningstar assigned the Class D notes a rating of B (sf). While DBRS Morningstar's “Rating U.S. Retail Auto Loan Securitizations” methodology does not set forth a range of multiples for this asset class for the B (sf) level, the analytical approach for this rating level is consistent with that contemplated by the methodology. The typical range of multiples applied in the DBRS Morningstar stress analysis for a B (sf) rating is 1.00 times (x) to 1.25x.

(8) The legal structure and presence of legal opinions that address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with Arivo, that the trust has a valid first-priority security interest in the assets, and the consistency with DBRS Morningstar’s “Legal Criteria for U.S. Structured Finance” methodology.

The transaction is being structured as a Rule 144A transaction offering four classes of notes: Class A, Class B, Class C and Class D. Initial Class A credit enhancement of 15.65% includes a cash collateral account (1.00% of the aggregate pool balance (the initial pool balance plus the subsequent receivable balance), funded at inception and non-declining); overcollateralization (OC) of 0.60% of the initial pool balance as of the initial cut-off date; and subordination of 14.05% of the aggregate pool balance. Initial Class B enhancement of 9.20% includes a 1.00% cash collateral account, OC of 0.60% and 7.60% subordination. Initial Class C enhancement of 6.00% includes a 1.00% cash collateral account, OC of 0.60% and 4.40% subordination. Initial Class D enhancement of 1.60% includes a 1.00% cash collateral account and 0.60% OC.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating U.S. Retail Auto Loan Securitizations (May 13, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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