DBRS Morningstar Assigns Provisional Ratings to FREED ABS Trust 2021-1CP

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of notes (the Notes) to be issued by FREED ABS Trust 2021-1CP (FREED 2021-1CP):

-- $132,980,000 Class A Notes at AA (low) (sf)
-- $29,800,000 Class B Notes at A (low) (sf)

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

(1) The transaction’s assumptions consider DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the Coronavirus Disease (COVID-19), available in its commentary “Global Macroeconomic Scenarios: January 2021 Update,” published on January 28, 2021. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, which have been regularly updated. The scenarios were last updated on January 28, 2021, and are reflected in DBRS Morningstar’s rating analysis.

(2) 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.
--DBRS Morningstar's projected losses include the assessment of the impact of the coronavirus. The DBRS Morningstar cumulative net loss (CNL) assumption is 16.05% based on the expected Cutoff Date pool composition.
--DBRS Morningstar incorporated in its analysis a hardship deferment stress as a result of an increase in utilization related to the impact of the coronavirus on borrowers. DBRS Morningstar stressed hardship deferments to test liquidity risk early in the life of the transaction’s cash flow.

(3) The transaction’s form and sufficiency of available credit enhancement.
-- Subordination, overcollateralization, amounts held in the Reserve Fund, and excess spread create credit enhancement levels that are commensurate with the proposed ratings.
-- Transaction cash flows are sufficient to repay investors under all AA (low) (sf) and A (low) (sf) stress scenarios in accordance with the terms of the FREED 2021-1CP transaction documents.

(4) Structural features of the transaction that require the Notes to enter into full turbo principal amortization if certain triggers are breached or if credit enhancement deteriorates.

(5) The experience, sourcing, and servicing capabilities of Freedom Financial Asset Management, LLC (FFAM).

(6) The experience, underwriting, and origination capabilities of Cross River Bank (CRB) and MetaBank, National Association (MetaBank) (together, the Partner Banks).
-- MetaBank-originated loans comprise less than 1% of the Cutoff Date Pool Balance. No operational risk review was performed on MetaBank.

(7) The ability of Wilmington Trust National Association (rated AA (low) with a Negative trend by DBRS Morningstar) to perform duties as a Backup Servicer and the ability of Vervent Inc. to perform duties as a Backup Servicer Subcontractor.

(8) The annual percentage rate (APR) charged on the loans and the CRB’s status of the Partner Banks as the true lender.
-- All loans included in FREED 2021-1CP are originated by CRB, a New Jersey state-chartered FDIC-insured bank or MetaBank, a national bank. All loans included in FREED 2021-1CP are originated by CRB, a New Jersey state-chartered Federal Deposit Insurance Corporation-insured bank.
-- Loans originated by CRB are all within the New Jersey state usury limit of 30.00%.
-- Loans originated by MetaBank are within the South Dakota state usury limit of 36.00%.
-- The weighted-average APR of the loans in the pool is 25.41%.
-- Loans may be in excess of individual state usury laws; however, the Partner Banks as the true lenders are able to export rates that preempt state usury rate caps. Loans may be in excess of individual state usury laws; however, CRB or MetaBank, as the true lenders, are able to export rates that preempt state usury rate caps.
-- For the C+ Loans, the Partner Banks hold the loans for the “disbursement period,” which generally lasts for three months or longer. The Partner Banks bear the risk of credit loss during these holding periods.
-- Loans originated to borrowers in states with active litigation (Second Circuit (New York, Connecticut, Vermont), Colorado, and West Virginia) are excluded from the pool.
--The FREED 2021-1CP loan pool includes loans originated to borrowers in Maryland, a state with active litigation. Assuming that loans to borrowers in Maryland with APRs above the state usury cap of 24% were subsequently reduced to the state usury cap results in minimal impact to transaction cash flows.
-- Under the Loan Sale Agreement, FFAM is obligated to repurchase any loan if there is a breach of representation and warranty that materially and adversely affects the interests of the purchaser.

(9) The legal structure and expected legal opinions that will address the true sale of the personal loans, the nonconsolidation of the trust, that the trust has a valid perfected security interest in the assets, and consistency with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance.”

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. Structured Finance Transactions (November 6, 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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