DBRS Updates Provisional Ratings on NewStar Commercial Lease Funding 2015-1 LLC, Equipment Contract-Backed Notes, Series 2015-1

DBRS, Inc. (DBRS) has today assigned a provisional rating of A (low) (sf) to the Series 2015-1, Class B Notes to be issued by NewStar Commercial Lease Funding 2015-1 LLC. DBRS had previously assigned an AA (sf) provisional rating to the Series 2015-1, Class A Notes and confirms the rating.

Following the issuance of the presale report by DBRS on July 30, 2015, there have been several structural and collateral modifications to the transaction, which prompted the additional review by DBRS. These modifications include, among other things, the following:
(1) A reduction in the exposure to five of the largest obligors. As such, the share of the six largest obligors in the Asset Pool decreased from 45.8% to 37.4% of the aggregate Discounted Contract Balance. Accordingly, the share of the three largest obligors decreased from 28.8% to 20.0% of the aggregate Discounted Contract Balance;
(2) An increase in the weighted-average discount rate for the Asset Pool as of the Initial Cut-Off Date to 7.35% from 5.47% (note that the increase in the weighted-average discount rate relates to one contract that has been re-discounted at 35.18% in order to provide additional excess spread and enhancement against a particular obligor);
(3) A 2.7% increase in the credit enhancement available to the Class A Notes at closing to 31.5% from 28.8%; and
(4) A 2.0% increase in the credit enhancement available to the Class B Notes at closing (by increasing overcollateralization) to 18.7% from 16.7%.

As a result of these changes, which affected certain cash flow modeling assumptions such as the recovery rate estimate and the output of the DBRS CLO Asset Model, DBRS’s stressed net loss rates and the weighted-average recovery rates commensurate with each rating level for the expected Asset Pool have been updated as follows:

Target Rating of AA
Stressed Net Loss: 22.72%
Recovery Rate: 65.8%

Target Rating of A (low)
Stressed Net Loss: 18.44%
Recovery Rate: 68.0%

DBRS updated its cash flow modeling analysis accordingly. As a result, the Class A Notes are passing the cash flow stresses with an increased cushion, and the credit enhancement available to the Class B Notes is now commensurate with an A (low) rating.

DBRS is withdrawing the previously assigned provisional rating of BBB (low) (sf) on the Series 2015-1, Class B Notes.

Notes:
The Rule 17g-7 Report of Representations and Warranties is hereby incorporated by reference and can be found by clicking on the link below or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is Rating U.S. Equipment Lease and Loan Securitizations (June 2015), which can be found on our website under Methodologies.