DBRS Assigns Rating to Chesapeake Funding III LLC, Series 2015-A

DBRS, Inc. (DBRS) has today assigned a rating of A (sf) to the Series 2015-A Notes (the Notes) issued by Chesapeake Funding III LLC (the Issuer).

DBRS has confirmed the A (sf) rating on the Chesapeake Funding II LLC, Series 2015-A Notes due to the Series performing within expectations. With the assignment of the Series 2015-A Notes to Chesapeake Funding III LLC, DBRS is withdrawing the A (sf) rating on the Chesapeake Funding II LLC, Series 2015-A Notes.

Chesapeake Funding III LLC represents a new Issuer established by Element Fleet Management Corp. (Element). The Series 2015-A Notes were initially issued out of the Chesapeake Funding II LLC, but have since been assigned to Chesapeake Funding III LLC.

The Notes are secured by a first-priority, perfected security interest in the following (the Collateral):
-- Vehicles titled in the name of GELCO Corporation (GELCO),
-- The related open-end fleet leases and
-- Vehicles acquired by GELCO at the request of lessees that are in the process of being leased.

The Chesapeake Funding III LLC, Series 2015-A is not revolving. The Collateral is static and the Notes amortize by 100% of principal collections and charge-offs post-closing.

The Collateral is titled in the name of GELCO, which is an operating company and wholly owned, indirect subsidiary of Element. GELCO is the nominee tittle holder and contributed all economic benefits of ownership to a titling trust, Gelco Fleet Trust (GFT), at closing. GELCO retains only bare legal title to the transferred vehicles and grants an irrevocable power of attorney to GFT to take all action necessary in the name of GELCO to transfer the titles to such vehicles to GFT. Issuer’s counsel delivered opinions addressing the true contribution of the vehicles to GFT pursuant to the contribution agreement and the non-consolidation of GFT’s equitable interest in the transferred vehicles with GELCO’s estate in a bankruptcy proceeding.

The transaction bears no residual value exposure since there are no close-ended leases and the lessees under open-ended leases are responsible for any difference between the liquidation value and the net book value of the vehicle.

GELCO is the originator for the transaction. GELCO 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. GELCO is also the servicer for the transaction.

The A (sf) rating on the Notes is based on DBRS’s review 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.
-- GELCO’s capabilities with regard to originations and underwriting.
-- DBRS has performed an operational review of GELCO and considers the company to be an acceptable originator.
-- GELCO’s capabilities with regard to servicing.
-- 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 GELCO, 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 principal methodology is Rating U.S. Auto Fleet Lease Securitizations, which can be found on dbrs.com under Methodologies.

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.

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