NEW YORK--(EON: Enhanced Online News)--Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to three note classes of Securitized Equipment Receivables Trust 2017-1. The notes are supported by the residual certificates from the Ascentium Capital Equipment Receivables 2015-2 Trust transaction (ACER 2015-2) that closed on October 28, 2015. ACER 2015-2 and SERT 2017-1 feature a “full turbo” waterfall, whereby all collections after expenses and interest payments will pay down principal. Ascentium Capital LLC (“Ascentium” or “the Company”) has previously sponsored six term ABS transactions, two of which have been paid in full.
The transaction represents Ascentium’s second equipment lease re-securitization. The Company’s first re-securitization was issued in April 2016.
As of March 1, 2017, the underlying aggregate discounted contract principal balance of the portfolio is approximately $167.0 million. The portfolio is comprised of 4,695 contracts and 4,280 obligors. The average discounted contract balance is approximately $35,559 and the average remaining term is approximately 37 months. The maximum exposure to an obligor is approximately 0.56% of the aggregate discounted contract balance. The securitization is based on the projected equipment loan and lease cash flows discounted at a rate of 4.55%.
KBRA considered several key factors in its analysis of this transaction, including:
- Credit enhancement is in the form of subordination, overcollateralization and a capitalized interest reserve account, which covers 61 months of interest on all note classes for SERT 2017-1.
- Diversity of collateral pool in terms of assets and obligors. As of March 1, 2017, the portfolio has 4,280 individual obligors. Top obligor constitutes 0.56% of aggregate discounted contract balance.
- “Full turbo” transaction, where all collections after expenses and interest payments will pay down principal. SERT 2017-1 benefits from the full-turbo structure of ACER 2015-2 in terms of increased enhancement levels each subsequent month assuming satisfactory performance.
- All of Ascentium’s sponsored securitized transactions have made timely interest payments to date with stable collateral performance.
- KBRA notes that uncapped expenses and indemnities for ACER 2015-2 are paid prior to proceeds being used to repay SERT 2017-1 noteholders presenting an incremental risk to SERT 2017-1 noteholders.
- The Company has been in continuous operation since 2004 and executive management has worked together through numerous business cycles and has managed Ascentium for 12 years.
KBRA has analyzed this transaction using the Equipment Lease & Loan Methodology published on June 30, 2012. The key determinants considered in the rating outcome are: (1) an analysis of the underlying collateral pool, (2) the originator’s historical static pool data, (3) the proposed capital structure for the transaction, (4) KBRA’s operational assessment on the originator and servicer and (5) the legal structure, transaction documents and legal opinions.
KBRA performed cash flow modeling on this transaction to determine whether the projected cash flow from the equipment contracts was sufficient to warrant the requested rating levels.
KBRA assumed the following as its base case scenario and subsequently reviewed the multiple coverage given the requested rating category for each note class:
- Cumulative net loss range of 2.20%–2.30%
- No seasoning credit given
- Weighted average remaining term of originations (37 months)
- Default timing curves were tested on a base case loss curve (60%/40%) and back-loaded basis (40%/60%)
- Prepayment speed: 4% CPR
|Class||Preliminary KBRA Rating||Initial Principal Balance|
|A Notes||AA (sf)||$22,800,000|
|B Notes||A (sf)||$4,200,000|
|C Notes||BBB (sf)||$4,000,000|
Related Publications: (available at www.kbra.com)
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KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).