Rating Action: Moody's confirms ratings on eleven classes of notes issued by Stonebriar
Global Credit Research - 31 Aug 2020
Approximately $373.9 million of asset-backed securities affected
New York, August 31, 2020 -- Moody's Investors Service, ("Moody's") has confirmed the ratings on the following notes issued by Stonebriar Commercial Finance LLC and Stonebriar Commercial Finance Canada Inc (Stonebriar).
Issuer: SCF Equipment Leasing 2018-1 LLC/SCF Equipment Leasing Canada 2018 Limited Partnership Series 2018-1
Class D Notes, Confirmed at A1 (sf); previously on Apr 23, 2020 A1 (sf) Placed Under Review for Possible Downgrade
Class E Notes, Confirmed at Baa3 (sf); previously on Apr 23, 2020 Baa3 (sf) Placed Under Review for Possible Downgrade
Class F Notes, Confirmed at B1 (sf); previously on Apr 23, 2020 B1 (sf) Placed Under Review for Possible Downgrade
Issuer: SCF Equipment Leasing 2019-1 LLC/SCF Equipment Leasing Canada 2019 Limited Partnership
Class C Notes, Confirmed at A3 (sf); previously on Apr 23, 2020 A3 (sf) Placed Under Review for Possible Downgrade
Class D Notes, Confirmed at Baa3 (sf); previously on Apr 23, 2020 Baa3 (sf) Placed Under Review for Possible Downgrade
Class E Notes, Confirmed at Ba1 (sf); previously on Apr 23, 2020 Ba1 (sf) Placed Under Review for Possible Downgrade
Class F Notes, Confirmed at B2 (sf); previously on Apr 23, 2020 B2 (sf) Placed Under Review for Possible Downgrade
Issuer: SCF Equipment Leasing 2019-2 LLC/SCF Equipment Leasing Canada 2019-2 L.P.
Class C Notes, Confirmed at A3 (sf); previously on Apr 23, 2020 A3 (sf) Placed Under Review for Possible Downgrade
Class D Notes, Confirmed at Baa2 (sf); previously on Apr 23, 2020 Baa2 (sf) Placed Under Review for Possible Downgrade
Class E Notes, Confirmed at Ba3 (sf); previously on Apr 23, 2020 Ba3 (sf) Placed Under Review for Possible Downgrade
Class F Notes, Confirmed at B3 (sf); previously on Apr 23, 2020 B3 (sf) Placed Under Review for Possible Downgrade
These actions conclude the review for downgrade initiated on April 23, 2020 on the notes. The transactions are securitizations of equipment loans and leases secured primarily by railcars, corporate aircraft, transportation equipment, marine vessels, other manufacturing and industrial equipment, and owner-occupied commercial real estate loans.
Today's rating actions are the result of stabilized credit quality of the obligors since the beginning of the coronavirus outbreak as well as the continuous build-up of credit enhancement levels including overcollateralization and non-declining reserve account.
Despite the credit quality deterioration stemming from economic shocks triggered by the coronavirus outbreak, Moody's concluded that the risk posed to, and the expected losses on, the notes continue to be consistent with the current ratings of the notes. Expected loss on the loans and leases is a function of, among other things, financial health of the obligors, the asset value of the collaterals, and the amortization of the loan or lease contracts. The credit quality of the pool has stabilized since April as evidenced by fewer than expected negative rating actions on underlying obligors' ratings. In addition, credit enhancement, including overcollateralization and non-declining reserve account, continued to increase since April and provides support to the transactions. Other considerations include the structural features such as sequential pay structures and excess spread.
The rapid spread of the coronavirus outbreak, the government measures put in place to contain it and the deteriorating global economic outlook, have created a severe and extensive credit shock across sectors, regions and markets. Our analysis has considered the effect on the performance of corporate assets from the collapse in the U.S. economic activity in the second quarter and a gradual recovery in the second half of the year. However, that outcome depends on whether governments can reopen their economies while also safeguarding public health and avoiding a further surge in infections. 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.
The principal methodology used in these ratings was "Moody's Approach to Rating ABS Backed by Equipment Leases and Loans" published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1236206. 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:
Moody's could upgrade the ratings on the notes if levels of credit protection are greater than necessary to protect investors against current expectations of loss. Moody's updated expectations of loss may be better than its original expectations because of lower frequency of default by the underlying obligors or lower than expected depreciation in the value of the equipment and commercial real estate that secure the obligor's promise of payment. As the primary drivers of performance, positive changes in the US macro economy and the strong performance of various sectors where the obligors operate could also affect the ratings.
Moody's could downgrade the ratings of the notes if levels of credit protection are insufficient to protect investors against current expectations of loss. Moody's updated expectations of loss may be worse than its original expectations because of higher frequency of default by the underlying obligors or a greater than expected deterioration in the value of the equipment and commercial real estate that secure the obligor's promise of payment. As the primary drivers of performance, negative changes in the US macro economy and the weak performance of various sectors where the obligors operate could also affect Moody's ratings. Other reasons for worse performance than Moody's expectations could include poor servicing, error on the part of transaction parties, lack of transaction governance and fraud.
For 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.
In rating this transaction, Moody's CDOROM(TM) is used to model the expected loss for each tranche. Moody's CDOROM(TM) is a Monte Carlo simulation tool which takes each underlying asset default probability as input. Each underlying asset default behavior is then modeled individually with a standard multi-factor model incorporating both intra- and inter-industry correlation. The correlation structure is based on a Gaussian copula. Each Monte Carlo scenario simulates defaults and if applicable, recovery rates, to derive losses on a portfolio. For a synthetic transaction, the model then allocates losses to the tranches in reverse order of priority to derive the loss on the tranches. By repeating this process and averaging over the number of simulations, Moody's can derive the expected loss on the tranches. For a cash transaction, the portfolio loss, or default, distribution produced by Moody's CDOROM(TM) may be input into a separate cash flow model in accordance with its priority of payment to determine each tranche's expected loss.
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 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_1133569.
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.
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.
Sandie Zhang 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 Benjamin Shih 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
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