DBRS Morningstar Finalizes Provisional Ratings on Arivo Acceptance Auto Loan Receivables Trust 2022-1

DBRS, Inc. (DBRS Morningstar) finalized provisional ratings on the following classes of notes issued by Arivo Acceptance Auto Loan Receivables Trust 2022-1 (ARIVO 2022-1 or the Issuer):

-- $159,090,000 Class A Notes at AA (sf)
-- $13,720,000 Class B Notes at A (sf)
-- $17,720,000 Class C Notes at BBB (sf)
-- $10,970,000 Class D Notes at BB (sf)

The 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 is 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-projected 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 in which they have invested. For this transaction, the ratings address the payment of timely interest on a monthly basis and principal by the legal final maturity date.

(2) The DBRS Morningstar CNL assumption is 9.40% based on the cut-off date pool composition.

(3) The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary, Baseline Macroeconomic Scenarios For Rated Sovereigns: March 2022 Update published on March 24, 2022. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse COVID-19 pandemic scenarios, which were first published in April 2020. Despite several new or increasing risks including Russian invasion of Ukraine, rising inflation and new COVID-19 variants, the overall outlook for growth and employment in the United States remains relatively positive.

(4) DBRS Morningstar performed an operational review of Arivo and considers the entity 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 Stable 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 65 months with WA seasoning of approximately five months. The nonzero WA credit score of the pool is 560 and the WA APR is 15.73%.

(6) The legal structure and presence of legal opinions, which 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 consistency with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance.”

The rating on the Class A Notes reflects 25.60% of initial hard credit enhancement provided by subordinated notes in the pool (20.10%), overcollateralization (4.50%) and cash collateral account (1.00% of the aggregate pool balance, including the initial pool balance plus the subsequent receivable balance, and nondeclining). The ratings on the Class B, C and D Notes reflect 19.10%, 10.70% and 5.50% of initial hard credit enhancement, respectively.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found at in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating U.S. Retail Auto Loan Securitizations (May 10, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.

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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