DBRS Assigns Ratings to Chesapeake Funding II LLC, Series 2015-1 and 2015-2

DBRS, Inc. (DBRS) has today assigned new ratings to the following notes (the Notes) issued by Chesapeake Funding II LLC (the Issuer):

-- Series 2015-1 Notes, Class A rated A (sf)
-- Series 2015-2 Notes, Class A rated A (sf)

Chesapeake Funding II LLC represents a new master trust established by Element Financial Corporation (Element) in connection with its acquisition of the North American fleet management operations of General Electric Capital Corporation (GE Fleet), which closed on August 31, 2015. The Notes are the first to be issued under this new master trust. Proceeds from the issuance of the Notes are refinancing corporate debt issued by Element in connection with its acquisition of GE Fleet. The Notes are secured by a first-priority, perfected security interest in the following (the Collateral):

-- Vehicles titled in the name of the titling trust, Gelco Fleet Trust (GFT),
-- The related open-end (and potentially closed-end) fleet leases,
-- Loans primarily to regional rental car companies secured by vehicles and
-- Vehicles acquired by GFT at the request of lessees that are in the process of being leased.

Historically, open-ended leases have represented 100.0% of the GE Fleet collateral; however, there is a concentration limit for residual value exposure under closed-end leases equal to 7.5%. The transaction bears minimal residual value exposure since the lessees under open-ended leases are responsible for any difference between the liquidation value and the net book value of the vehicle.

Element also uses an existing master trust platform (Chesapeake Funding LLC), which finances its fleet lease portfolio prior to the acquisition of GE Fleet. The two structures are separate and not cross collateralized.

Element Vehicle Management Services Group, LLC (VMS), a subsidiary of Element, is the originator and servicer for the transaction. VMS and its affiliated companies provide vehicle leasing and fleet management services, including fuel and maintenance cards and accident management services, throughout the United States, with leading market shares across many of its product lines.

The Collateral is somewhat concentrated with the top ten obligors comprising approximately 40% of the pool; however, the pool exhibits a fairly high credit quality with approximately 62% of the obligors being rated investment grade. This high credit quality is reflected in its solid historical performance. Late-stage delinquencies (90+ days past due) are relatively low, ranging between 15 basis points (bps) and 106 bps over the period from January 2010 to June 2015. Monthly net losses are under five bps over the same time period.

Credit enhancement for both Series 2015-1 and Series 2015-2 consists of overcollateralization (OC) equal to 5.25% of Collateral and a cash reserve equal to 1.25% of Collateral. Both OC and the cash reserve are locked out at the start of amortization. The required credit enhancement amount is increased by (1) 1.00% if certain portfolio triggers are breached and (2) the balance of certain excess concentration amounts.

Series 2015-1 has a 12-month revolving period and Series 2015-2 has a 24-month revolving period, during which time principal collections are allocated to maintain the required credit enhancement.

The A (sf) ratings for Series 2015-1 and Series 2015-2 are based on a review by DBRS of the following analytical considerations:

-- Transaction capital structure, proposed ratings and form and sufficiency of available credit enhancement.
-- Credit enhancement levels are sufficient to support DBRS stressed loss assumptions under various stress scenarios.
-- The yield supplement account is established to supplement the yield from any lease that does not meet a minimum yield requirement.
-- The ability of the Transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested. The rating addresses the payment of timely interest on a monthly basis and principal by the final maturity date.
-- VMS’s capabilities with regard to originations, underwriting and servicing.
-- DBRS has performed an operational review of VMS and considers the company to be an acceptable originator and servicer.
-- The high credit quality and historical performance of the Collateral.
-- The leased vehicles are essential use vehicles for customers; therefore, such leases are likely to be affirmed by an obligor in a bankruptcy proceeding.
-- The legal structure and presence of legal opinions that address the true sale of the assets, the non-consolidation of the Issuer with VMS, the Issuer’s valid first-priority security interest in the assets and the consistency with the DBRS “Legal Criteria for U.S. Structured Finance.”

Notes:
The applicable methodology is Rating U.S. Auto Fleet Lease Securitizations, which can be found on our website under Methodologies.

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

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.