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Pawnee Equipment Receivables (Series 2022-1) LLC -- Moody's assigns definitive ratings to Pawnee Equipment Receivables (Series 2022-1) LLC

·16 min read

Rating Action: Moody's assigns definitive ratings to Pawnee Equipment Receivables (Series 2022-1) LLCGlobal Credit Research - 11 Aug 2022Approximately $320 million of securities ratedNew York, August 11, 2022 -- Moody's Investors Service ("Moody's") has assigned definitive ratings to five classes of notes issued by Pawnee Equipment Receivables (Series 2022-1) LLC (PWNE 2022-1). PWNE 2022-1 is Pawnee Leasing Corporation's (Pawnee) fourth securitization, and the second transaction that Moody's has rated. The notes are backed by a pool of small- and mid-ticket equipment loans and leases that are originated by Pawnee and its sister company Tandem Finance Inc. (Tandem). Pawnee is also the servicer of the collateral pool and administrator for the transaction.The complete rating actions are as follows:Issuer: Pawnee Equipment Receivables (Series 2022-1) LLCClass A-1 Asset Backed Notes, Definitive Rating Assigned P-1 (sf)Class A-2 Asset Backed Notes, Definitive Rating Assigned Aaa (sf)Class A-3 Asset Backed Notes, Definitive Rating Assigned Aaa (sf)Class B Asset Backed Notes, Definitive Rating Assigned A1 (sf)Class C Asset Backed Notes, Definitive Rating Assigned Baa2 (sf)RATINGS RATIONALEThe definitive ratings are based on; (1) the credit quality of the securitized collateral, including, among other factors, the equipment type, size of obligors, and the relatively short duration of the loans and leases; (2) the historical performance of Pawnee's managed portfolio; (3) the experience and expertise of Pawnee as the originator and servicer of the collateral; (4) Vervent, Inc. (Vervent), as backup servicer for the contracts; (5) the strength of the transaction structure including, among other factors, the sequential pay structure and credit enhancement; and (6) the legal aspects of the transaction.Additionally, we base our P-1 (sf) rating of the Class A-1 notes, which is 12.90% of the total assets to be securitized, 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.Moody's cumulative net loss expectation for the PWNE 2022-1 collateral pool is 4.50%, and the loss at a Aaa stress is 30.00%.Moody's based its cumulative net loss expectation and loss at a Aaa stress for the PWNE 2022-1 pool on the credit quality of the underlying collateral; the historical securitization performance and managed portfolio performance of similar collateral; the ability of Pawnee to perform the servicing functions; and our expectations for the macroeconomic environment during the life of the transaction.At transaction closing, the Class A, Class B, and Class C notes benefit from 26.10%, 16.50%, and 13.20% of hard credit enhancement, respectively. Hard credit enhancement for the notes consist of initial overcollateralization of 4.85% of the initial pool balance and building to a target level of 6.80% of current pool balance, subject to a floor of 1.00% of the initial pool balance, a non-declining reserve account of 1.00% of the initial pool balance, and subordination for Class A, B, and C notes. The notes will also benefit from excess spread.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was "Equipment Lease and Loan Securitizations Methodology" published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/390483. Alternatively, please see the Rating Methodologies page on https://ratings.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 notes if levels of credit protection are greater than necessary to protect investors against current expectations of loss. Moody's then current expectations of loss may be better than its original expectations because of lower frequency of default by the underlying obligors or slower depreciation than expected in the value of the equipment securing obligors' promise of payment. As the primary drivers of performance, positive changes in the US macro economy and the performance of various sectors in which the obligors operate could also affect the ratings. This transaction has a sequential pay structure and therefore credit enhancement will grow as a percentage of the collateral balance as collections pay down senior notes. Prepayments and interest collections directed toward note principal payments will accelerate this build-up of enhancement.DownMoody's could downgrade the notes if levels of credit enhancement are insufficient to protect investors against current expectations of portfolio losses. Losses could rise above Moody's original expectations as a result of a higher number of obligor defaults or higher than expected deterioration in the value of the equipment that secure the obligor's promise of payment. As the primary drivers of performance, negative changes in the US macro economy and the performance of various sectors in which the obligors operate could also affect the ratings. Other reasons for worse-than-expected performance could include poor servicing, error on the part of transaction parties, inadequate transaction governance or fraud. 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 payment deferrals or a servicer disruption that impacts obligor's payments.Additional research including a pre-sale report for this transaction is available at www.moodys.comREGULATORY 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 on https://ratings.moodys.com/rating-definitions.Further information on the representations and warranties and enforcement mechanisms available to investors are available on https://ratings.moodys.com/documents/PBS_1337177.The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody's evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the 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.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 issuer/deal page for the respective issuer on https://ratings.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 https://ratings.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://ratings.moodys.com/documents/PBC_1288235.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 https://ratings.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 https://ratings.moodys.com.Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating. Ekrem Cinar Associate Lead Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Aron Bergman VP - Senior Credit Officer Structured Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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