DBRS Assigns Provisional Ratings to SCF Equipment Trust 2016-1 LLC, Equipment Contract Backed Notes, Series 2016-1

DBRS, Inc. (DBRS) has today assigned provisional ratings to the following Equipment Contract Backed Notes (the Notes) to be issued by SCF Equipment Trust 2016-1 LLC:

-- Series 2016-1 Notes, Class A rated A (high) (sf)
-- Series 2016-1 Notes, Class B rated BBB (sf)

The ratings are based on the following analytical considerations:

-- Subordination, overcollateralization and cash reserve create the initial hard credit enhancement of 31.15% for the Class A Notes and 26.90% for the Class B Notes, which is sufficient to withstand cash flow modeling stresses commensurate with the respective A (high) and BBB target ratings for the Class A and the Class B Notes.
-- Sequential amortization of the Notes and limited release of the excess cash flows to the Issuer are expected to create increasing credit enhancement for the Class A and the Class B Notes over the life of the transaction.
-- Stonebriar Commercial Finance LLC (SCF) is well capitalized with equity support and a performance guarantee from Security Benefit Corporation.
-- SCF’s management team consists of seasoned members with extensive equipment leasing industry experience developed during their tenure with American International Group, Inc., GE Capital and Transamerica Corporation.
-- The collateral pool is concentrated comprising 19 obligors, which are represented by 70 Contracts. The largest obligor accounts for approximately 12.4% of the Aggregate Discounted Contract Balance (ADCB) as of the Initial Cut-Off Date, with the top three obligors accounting for approximately 33.7%.
-- The collateral pool’s assets are concentrated in corporate aircraft (approximately 23% of the ADCB as of the Initial Cut-Off Date), vessels such as barges, tugboats and pushboats (23%) as well as manufacturing and assembly equipment (17%).

This transaction represents the first term asset-backed securitization to be sponsored by SCF. Stonebriar was formed in March 2015 and is headquartered in Plano, Texas. SCF focuses on providing large-ticket financing primarily secured by essential-use industrial, manufacturing and transportation equipment to middle-market companies located throughout the United States. It is financially backed by Security Benefit Corporation, which will provide the performance guarantee with respect to the obligations of SCF as the Servicer. Members of the SCF’s executive management team each has an average of more than 25 years of experience in the commercial finance industry.

The collateral represents a portion of the outstanding equipment lease and loan originations by SCF, which are currently funded on its balance sheet. Stonebriar originates the assets directly and through its capital markets activity. The collateral for this transaction consists of large-ticket equipment financing in the form of loans, operating leases, tax leases and finance leases. The transaction is structured to pay interest and principal of the Notes in a sequential order. Amounts available after payment of senior expenses will be applied to pay interest on the Class A Notes, which may be followed by certain principal payments on the Class A Notes. The interest on the Class B Notes will be paid following these payments. As such, failure to pay interest in full on any class of the subordinated Notes (including Class B) in any period prior to its respective Final Maturity Date will not be an Event of Default.

Notes:
All figures are in U.S. Dollars unless otherwise noted.

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

Please see the attached appendix for additional information regarding sensitivity of assumptions used in the rating process.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

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