DBRS Morningstar Finalizes Provisional Ratings on BCC Funding XVI LLC, Equipment Contract Backed Notes, Series 2019-1

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of equipment contract backed notes issued by BCC Funding XVI LLC (the Issuer):

-- $120,000,000 Series 2019-1, Class A-1 Notes at R-1 (high) (sf)
-- $208,425,000 Series 2019-1, Class A-2 Notes at AAA (sf)
-- $38,062,000 Series 2019-1, Class B Notes at A (sf)
-- $16,313,000 Series 2019-1, Class C Notes at BBB (sf)
-- $26,100,000 Series 2019-1, Class D Notes at BB (sf)

The ratings are based on a review by DBRS Morningstar of the following analytical considerations:

-- Transaction capital structure, proposed ratings and sufficiency of available credit enhancement, which includes overcollateralization (OC), subordination and amounts held in the reserve account, to support the DBRS Morningstar-projected cumulative net loss assumption under various stressed cash flow scenarios.
-- The proposed concentration limits mitigating the risk of material migration in the collateral pool’s composition during the approximately three-month prefunding period.
-- The capabilities of Balboa Capital Corporation (BCC) with regard to originations, underwriting and servicing. DBRS Morningstar has performed an operational review of BCC and considers it an acceptable originator and servicer of equipment-backed lease and loan contracts. Portfolio Financial Servicing Company, an experienced servicer of equipment lease-backed securitizations, will be the Back-Up Servicer for the transaction.
-- The expected collateral for the transaction is granular with respect to obligor, vendor and geographical concentrations. More than 81% of the obligors (by aggregate Statistical Discounted Contract Balance) have been in business for six or more years and approximately 43% have been in business for 16 or more years. The weighted-average Small Business Scoring Service credit score for the businesses in the expected collateral pool will be at least 199. In addition, obligations comprising approximately 76.6% of an aggregate Statistical Discounted Contract Balance are supported by personal guarantees, and the payments on obligations accounting for approximately 93.4% are collected through Automated Clearing House.
-- The legal structure and presence of legal opinions that will address the true sale of the assets to the Issuer, the non-consolidation of the special-purpose vehicle with BCC and the grant to the trustee of a valid first-priority security interest in the assets. The legal structure is reviewed for the consistency with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance.”

BCC provides equipment and working capital financing to small- and mid-sized companies in the United States. It originates leases and loans through three principal channels: (1) vendor financing through partnerships with equipment vendors, (2) small-ticket originations through direct calling and (3) larger small-ticket direct originations to middle-market obligors. This transaction will include a small portion (0.49% of an aggregate Statistical Discounted Contract Balance) of working capital loans.

The rating on the Class A-1 Notes reflects 73.9% of initial hard credit enhancement (as a percentage of collateral balance) provided by the subordinated notes in the pool (66.4%), the Reserve Account (1.5%) and OC (6.0%). The rating on the Class A-2 Notes reflects 26.0% of initial hard credit enhancement provided by the subordinated notes in the pool (18.5%), the Reserve Account (1.5%) and OC (6.0%). The ratings on the Class B, Class C and Class D Notes reflect 17.3%, 13.5% and 7.5% of initial hard credit enhancement, respectively.

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

The principal methodology is Rating U.S. Equipment Lease and Loan Securitizations, which can be found on dbrs.com under Methodologies & Criteria.

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

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

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].

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