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Rating Action: Moody's assigns provisional ratings to HPEFS Equipment Trust 2021-1 notesGlobal Credit Research - 18 Feb 2021New York, February 18, 2021 -- Moody's Investors Service (Moody's) has assigned provisional ratings to the notes to be issued by HPEFS Equipment Trust 2021-1 (HPEFS 2021-1). The HPEFS 2021-1 notes will be the fourth ABS issuance for Hewlett- Packard Financial Services Company (HPEFS), a wholly owned subsidiary of Hewlett Packard Enterprise Company (HPE; Baa2/P-2 stable). The notes will be backed by a pool of small-ticket equipment loans and leases primarily originated by HPEFS, who will also be the servicer of the loan and lease pool backing the transaction, and the administrator for the issuer.The complete rating actions are as follows:Issuer: HPEFS Equipment Trust 2021-1Class A-1 Notes, Assigned (P)P-1 (sf)Class A-2 Notes, Assigned (P)Aaa (sf)Class A-3 Notes, Assigned (P)Aaa (sf)Class B Notes, Assigned (P)Aa1 (sf)Class C Notes, Assigned (P)Aa2 (sf)Class D Notes, Assigned (P)A1 (sf)RATINGS RATIONALEThe provisional ratings of the notes are based on (1) the credit quality of the underlying equipment contracts and their expected performance, (2) the historical performance of HPEFS' managed portfolio of similar collateral, (3) the track record, experience and expertise of HPEFS as originator and servicer of the collateral, (4) the strength of the transaction structure, and (5) the legal aspects of the transaction. Additionally, we base our (P)P-1 (sf) rating of the Class A-1 notes on the cash flows that we expect the underlying receivables to generate during the collection periods prior to the Class A-1 notes' legal final maturity date in March 2022.Moody's cumulative net loss expectation for the HPEFS 2021-1 collateral pool is 1.80% and the loss at a Aaa stress is 19.25%, which is comprised of 15.50% credit loss and 3.75% residual value loss.Key credit strengths of the transaction include the (1) high credit quality of the pool (85% of the discounted pool balance consists of contracts to obligors that are large institutions, a segment that has historically incurred very low losses in HPEFS' portfolio), (2) short remaining term of the contracts, (3) a strong transaction structure and (4) an experienced servicer.Key credit challenges include (1) the negative effect of the coronavirus on economic activity in the US, (2) a high obligor concentration (the top 10 obligors make up around 45% of the discounted pool balance), (3) relatively high residual value risk, (4) low expected recoveries upon obligor default, (5) exposure to the service providers and (6) the high level of allowable substitutions (20% of the discounted pool balance).At transaction closing, the Class A, Class B, Class C, and Class D notes will benefit from 25.30%, 20.70%, 15.50% and 8.00% of hard credit enhancement, respectively. Hard credit enhancement for the notes will consist of a combination of (1) overcollateralization of 7.00% of pool balance at closing, which will build to a target of 13.50% of the outstanding pool balance with a floor of 6.40% of the original pool balance, (2) a 1.00% fully funded, non-declining reserve account, and (3) subordination, except for the Class D notes. The notes may also benefit from excess spread.The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of corporate assets from the current weak US economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high.We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was "Moody's Approach to Rating ABS Backed by Equipment Leases and Loans" published in December 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1253993. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Factors that would lead to an upgrade or downgrade of the ratings:UpMoody's could upgrade the ratings on the notes if levels of credit protection are greater than necessary to protect investors against Moody's current expectations of loss. Moody's then current expectations of loss may be better than its original expectations primarily because of lower frequency of default by the underlying obligors, and also slower than expected depreciation in the value of the equipment that secure the obligor's promise of payment. Positive changes in the US macro economy and the performance of various industries where the obligors operate could also affect the ratings.DownMoody's could downgrade the notes if levels of credit protection are insufficient to protect investors against Moody's current expectations of portfolio losses. Losses could rise above Moody's original expectations primarily as a result of a higher number of obligor defaults, and also greater than expected deterioration in the value of the equipment that secure the obligor's promise of payment. Transaction performance also depends greatly on the US macro economy. Other reasons for worse-than-expected performance may include poor servicing or error on the part of transaction parties. Additionally, Moody's could downgrade the Class A-1 short term rating following a significant slowdown in principal collections that could result from, among other reasons, high delinquencies or a servicer disruption that impacts obligors' payments.Additional research including a pre-sale report for this transaction is available at www.moodys.com.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1265317.The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Chloe Zhang Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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