Morningstar DBRS Assigns Credit Ratings to Affirm Operational Loans XII Trust

DBRS, Inc. (Morningstar DBRS) assigned its credit rating on the Advances issued by Affirm Operational Loans XII Trust:

--$700,000,000 Advances at A (sf)

CREDIT RATING RATIONALE/DESCRIPTION
The credit ratings on the Advances are based on Morningstar DBRS' review of the following considerations:
(1) The transaction assumptions consider Morningstar DBRS' baseline macroeconomic scenarios for rated sovereign economies, available in its commentary Baseline Macroeconomic Scenarios For Rated Sovereigns March 2025 Update, published on March 25, 2025. These baseline macroeconomic scenarios replace Morningstar DBRS' moderate and adverse COVID-19 pandemic scenarios, which were first published in April 2020.
(2) The Transaction's form and sufficiency of available credit enhancement.
--Overcollateralization, amounts held in the Reserve Account, and excess spread create credit enhancement levels that are commensurate with the credit ratings.
--Transaction cash flows are sufficient to repay the lenders under A (sf) stress scenarios in accordance with the terms of the transaction documents.
(3) Concentration limits and eligibility criteria, which will help maintain the characteristics of the loan pool during the revolving period. A worst-case loss pool was constructed for credit analysis giving consideration to the concentration limits present in the structure. Additionally, Morningstar DBRS used the Morningstar DBRS CLO Insight Model to assess stressed default rates assuming the worst case merchant and merchant industry exposure giving consideration to the concentration limits present in the structure.
--The base case cumulative net loss assumption (CNL) for the transaction under the most constraining cash flow scenario is 7.01%.
(4) The Transaction has certain performance-related triggers, which, if violated, will result in an early amortization event.
(5) The experience, sourcing, and servicing capabilities of Affirm, Inc. (Affirm).
--Morningstar DBRS has performed an operational review of Affirm and considers Affirm an acceptable servicer.
(6) The experience, underwriting, and origination capabilities of Affirm Loan Services LLC (ALS), Cross River Bank (CRB), Lead Bank, and Celtic Bank.
--Morningstar DBRS has performed an operational review of ALS, Cross River Bank, Lead Bank, and Celtic Bank and considers each entity an acceptable Originator of the loans.
(7) The ability of Nelnet Servicing, LLC to perform duties as a Backup Servicer.
(8) The annual percentage rate (APR) charged on the loans and the status of the originating bank as the true lender.
(9) The legal structure and legal opinions that address the true sale of the unsecured loans, the nonconsolidation of the trust, that the trust has a valid perfected security interest in the assets, and consistency with the Morningstar DBRS Legal Criteria for U.S. Structured Finance.

Morningstar DBRS' credit rating on the Advances addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are Senior Interest and the principal amount on the Advances.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. The associated contractual payment obligation that is not a financial obligation is the Subordinated Interest, Unused Fees, and Early Adoption Increased Costs.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in US dollars unless otherwise noted.

The principal methodology applicable to the credit rating is
Rating U.S. Structured Finance Transactions (Appendix I: U.S. Consumer Loan ABS Transactions) (March 10, 2025) https://dbrs.morningstar.com/research/449616.

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit rating was not initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

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

DBRS, Inc.
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New York, NY 10005 USA
Tel. +1 212 806-3277

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Interest Rate Stresses for U.S. Structured Finance Transactions (March 27, 2025)
https://dbrs.morningstar.com/research/450750
-- Global Methodology for Rating CLOs and Corporate CDOs and the CLO Insight Model v1.0.1.4 (September 19, 2024)
https://dbrs.morningstar.com/research/439759
-- Global Methodology for Rating Trade Receivable Securitizations (March 28, 2025)
https://dbrs.morningstar.com/research/450833
-- Operational Risk Assessment for U.S. ABS Originators and Servicers (March 26, 2025)
https://dbrs.morningstar.com/research/450709
-- Rating U.S. Structured Finance Transactions (March 10, 2025)
https://dbrs.morningstar.com/research/449616
-- Legal Criteria for U.S. Structured Finance (December 3, 2024)
https://dbrs.morningstar.com/research/444064

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.