Fitch Rates Bread Financial's Subordinated Debt 'B'

Published: 2025-03-12 06:13:23 ET BFH

Fitch Ratings has assigned Bread Financial Holdings' (BFH; BB-/Positive) $400 million subordinated debt a rating of 'B'.

The debt will pay a fixed rate for five years and reset to a new fixed rate against the then-current five-year U.S. treasury security, plus a spread that was determined at issuance, for the next five years. BFH plans to use the proceeds to establish its Tier 2 capital base at the parent and subsidiary, Comenity Capital Bank, and for general purposes, which may include share repurchases.

Key Rating Drivers

BFH's subordinated debentures are rated two notches below its 'bb-' Viability Rating (VR), which conforms with baseline notching for subordinated debt, according to Fitch's 'Bank Rating Criteria.' The rating reflects two notches for loss severity and none for non-performance risk. In November 2024, Fitch revised Bread's Rating Outlook to Positive from Stable and affirmed its Issuer Default Rating (IDR) at 'BB-' and VR at 'bb-'. Please see 'Fitch Revises Bread Financial Holdings' Outlook to Positive; Affirms IDR at 'BB-''at www.fitchratings.com.

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

A downgrade of BFH's Viability Rating would lead to a downgrade of the expected subordinated debt rating.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

An upgrade of BFH's Viability Rating would lead to an upgrade of the expected subordinated debt rating.

Date of Relevant Committee

20 February 2025

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Bread Financial Holdings, Inc. has an ESG Relevance Score of '4' for Customer Welfare - Fair Messaging, Privacy & Data Security due to for Customer Welfare - Fair Messaging, Privacy, and Data Security due to its exposure to compliance risks including fair lending practices, debt collection practices and consumer data protection, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.

Bread Financial Holdings, Inc. has an ESG Relevance Score of '4' for Financial Transparency. Due to the company's non-BHC status for regulatory purposes, BFH has exposure to quality of financial reporting and auditing processes, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

RATING ACTIONS

Entity / Debt

Rating

Prior

Bread Financial Holdings, Inc.

subordinated

New Rating

B(EXP)

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VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.

APPLICABLE CRITERIA

Fitch Affirms Three Navient Private Education Refi Loan Trusts

Tue 11 Mar, 2025 - 5:03 pm ET

Fitch Ratings - New York - 11 Mar 2025: Fitch Ratings has affirmed the ratings of Navient Private Education Refi Loan Trust 2020-E (2020-E), 2020-G (2020-G) and 2023-A (2023-A). The Rating Outlooks remain Stable.

RATING ACTIONS

Entity / Debt

Rating

Prior

Navient Private Education Refi Loan Trust 2020-G

Class A 63941UAA1

AAAsf

Affirmed

AAAsf

Navient Private Education Refi Loan Trust 2020-E

Class A 63941TAA4

AAAsf

Affirmed

AAAsf

Navient Private Education Refi Loan Trust 2023-A

A 638961AA0

AAAsf

Affirmed

AAAsf

B 638961AB8

AAsf

Affirmed

AAsf

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VIEW ADDITIONAL RATING DETAILS

Transaction Summary

The affirmations reflect increasing credit enhancement (CE) available to the rated notes, providing sufficient loss coverage to withstand Fitch's rating assumptions at the commensurate rating level.

KEY RATING DRIVERS

Collateral Performance: The 2020-E trust pool consists of private student loans refinancings (Refi PSL) originated by Earnest under the NaviRefi Student Loan Program (NaviRefi program) targeting existing Navient customers. The 2020-G trust pool consists of private student loan refinancings (Refi PSL) originated by Earnest under the Earnest Student Loan Refi Program (Earnest program) targeting loans held by external customers. The 2023-A trust pool include both Earnest and NaviRefi loan programs.

As of the last distribution date of February 2025, the 2020-E, 2020-G, and 2023-A pools had a weighted average (WA) remaining loan term of 123 months, 126 months, and 145 months and a pool factor of 34.7%, 25.2%, and 78.2%, respectively.

Fitch has maintained the lifetime default rate, as a percentage of the initial repayment balance, at 2.5% for 2020-E and 1.50% for 2020-G, and revised the lifetime default rate to 3.0% for 2023-A following weaker-than-anticipated asset performance for this transaction. These equal remaining default rates, as a percentage of the outstanding repayment balance as of the last distribution date, of 2.12%, 3.01%, and 2.46% for 2020-E, 2020-G, and 2023-A, respectively, assuming the current WA remaining loan term for each transaction and a 20% principal payment rate for both 2020-E and 2020-G and a 15% principal payment rate for 2023-A. Additionally, Fitch has assumed an annual prepayment rate of 7.5% for each transaction.

Fitch applies a rating default multiple of 4.50x to the default assumption at the 'AAAsf' rating level, mainly reflecting the shorter performance history of the Refi PSL program, a low absolute base case default assumption, and the potential for higher volatility between actual performance and base case assumptions derived via proxy data.

A base-case recovery rate of 20% is assumed for each transaction, based on recoveries observed on the transactions so far and Navient's traditional PSL ABS transactions and managed book. The base case recovery rate is stressed in line with rating-dependent recovery haircuts described in Fitch's private student loan criteria.

Payment Structure: Credit enhancement (CE) is provided by overcollateralization (OC) and excess spread, and, for class A notes, the subordination of class B notes. The current CE for the senior notes (excluding the reserve account) is 26.28%, 33.33% and 19.02% for 2020-E, 2020-G, and 2023-A, respectively, up from 22.46%, 27.85% and 17.46% in 2024 for 2020-E, 2020-G and 2023-A, respectively. For 2020-E and 2020-G, funds cannot be released from the trust unless the OC (excluding the reserve fund) builds up to 4.40% of the outstanding pool balance or 1.50% of the initial pool balance, whichever is higher. For 2023-A, funds cannot be released from the trust unless the OC (excluding the reserve account) builds up from the initial 11.25% to 13.00% of the outstanding pool balance or 1.50% of the initial pool balance, whichever is higher.

For 2020-E, 2020-G and 2023-A, liquidity support for the class A is provided by a dedicated reserve account, which will be maintained at 0.25% of the initial class A balance for each transaction. For 2023-A, the class B reserve account will be maintained at the greater of 0.25% of the outstanding class B balance and 0.15% of the initial class B balance.

Operational Capabilities: As of Oct. 21, 2024, MOHELA is acting as servicer for all the loans in the 2020-E, 2020-G and 2023-A trusts. Fitch has reviewed the servicing operations of MOHELA and considers it an effective private student loan servicer.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Navient Private Education Refi Loan Trust 2020-E

Increase base case defaults by 10%:class A 'AAAsf';

Increase base case defaults by 25%:class A 'AAAAsf;

Increase base case defaults by 50%:class A 'AAAsf';

Reduce base case recoveries by 10%:class A 'AAAsf';

Reduce base case recoveries by 20%:class A 'AAAsf';

Reduce base case recoveries by 30%:class A 'AAAsf';

Increase base case defaults and reduce base case recoveries each by 10%:class A 'AAAsf';

Increase base case defaults and reduce base case recoveries each by 25%:class A 'AAAsf';

Increase base case defaults and reduce base case recoveries each by 50%:class A 'AAAsf'.

Navient Private Education Refi Loan Trust 2020-G

Increase base case defaults by 10%: 'AAAsf';

Increase base case defaults by 25%: 'AAAsf;

Increase base case defaults by 50%: 'AAAsf';

Reduce base case recoveries by 10%: 'AAAsf';

Reduce base case recoveries by 20%: 'AAAsf';

Reduce base case recoveries by 30%: 'AAAsf';

Increase base case defaults and reduce base case recoveries each by 10%: 'AAAsf';

Increase base case defaults and reduce base case recoveries each by 25%: 'AAAsf';

Increase base case defaults and reduce base case recoveries each by 50%: 'AAAsf'.

Navient Private Education Refi Loan Trust 2023-A

Increase base case defaults by 10%: class A 'AAAsf', class B 'AAsf';

Increase base case defaults by 25%: class A 'AAAsf', class B 'AAsf';

Increase base case defaults by 50%: class A 'AAAsf', class B 'A+sf';

Reduce base case recoveries by 10%: class A 'AAAsf', class B 'AAsf';

Reduce base case recoveries by 20%: class A 'AAAsf', class B 'AAsf';

Reduce base case recoveries by 30%: class A 'AAAsf', class B 'AAsf';

Increase base case defaults and reduce base case recoveries each by 10%: class A 'AAAsf', class B 'AAsf';

Increase base case defaults and reduce base case recoveries each by 25%: class A 'AAAsf', class B 'AAsf';

Increase base case defaults and reduce base case recoveries each by 50%: class A 'AAAsf', class B 'A+sf'.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Navient Private Education Refi Loan Trust 2020-E

Fitch did not run an upside sensitivity for the class A notes as the notes are at the highest achievable rating of 'AAAsf'.

Navient Private Education Refi Loan Trust 2020-G

Fitch did not run an upside sensitivity as the notes are at the highest achievable rating of 'AAAsf'.

Navient Private Education Refi Loan Trust 2023-A

Fitch did not run an upside sensitivity for class A as the notes are at the highest achievable rating of 'AAAsf'.

For the class B notes:

Decrease base case defaults by 25%: class B 'AAAsf';

Increase base case recoveries by 10%: class B 'AA+sf';

Decrease base case defaults and increase base case recoveries each by 50%: class B 'AAAsf'.

USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Additional information is available on www.fitchratings.com