DBRS Morningstar Assigns Provisional Ratings to DLL I Limited Partnership Series DLLC 2020-1

DBRS Limited (DBRS Morningstar) assigned provisional ratings to the notes (collectively, the Notes) to be issued by DLL I Limited Partnership (DLL LP, or the LP) as follows:

-- Class A-1 Asset-Backed Notes, Series DLLC 2020-1 at AAA (sf)
-- Class A-2 Asset-Backed Notes, Series DLLC 2020-1 at AAA (sf)
-- Class A-3 Asset-Backed Notes, Series DLLC 2020-1 at AAA (sf)

The Notes will be supported by a portfolio of monthly, quarterly, semi-annual, and annual-pay retail lease receivables secured by new and used construction and industrial (CI), healthcare (HC), and office imaging and technology solutions (TS) equipment (collectively, the Portfolio of Assets). The Notes are structured as sequential-pay pass-through securities with principal and interest paid on a monthly basis from collections on the Portfolio of Assets.

The provisional ratings incorporate the following considerations:

HIGH LEVEL OF CREDIT ENHANCEMENT
Initially, 6.25% of hard credit enhancement consists of 1.00% cash and 5.25% overcollateralization (OC). By applying excess collections available monthly to repay outstanding principal on the Notes, the OC amount is expected to build to 7.00% of the Initial Pool Balance. The requirement to maintain the cash account and the OC amounts at their target levels provides a deleveraging structure as principal on the Notes is repaid. Non-amortizing credit enhancement ensures that an increasing level of protection is available to offset potential equipment disposition losses.

OBLIGOR PROFILE
The transaction benefits from a diverse portfolio of obligors, which reduces concentration risk. The largest obligor and 10 largest obligors represent 0.7% and 4.7% of the collateral pool, respectively. The obligors also operate in various industries, with the top five North American Industry Classification System sectors making up 57.0% of the portfolio: health care and social assistance (17.7%); manufacturing (14.1%); construction (10.0%); professional, scientific, and technical services (7.9%); and wholesale trade (7.3%). Exposure to multiple industries reduces the impact of any one industry experiencing a downturn. The detailed historical static loss performance on the CI, HC, and TS sectors provides significant data to assess and estimate base-case loss assumptions for each sector in the pool.

RESIDUAL VALUE EXPERIENCE
Conservative, global established residual value-setting policies and procedures contribute to strong residual realizations in the CI, HC, and TS business units for De Lage Landen Financial Services Canada Inc. (DLL Canada). Residual values are determined by sector-specific Asset Management (AM) teams, and there is no ability to subvent residual values (i.e., increase the residual value above what is determined by the AM team). Residual assessments are conducted quarterly and impairment tests are conducted annually at a business unit, vendor, and asset level. Since 2010, proceeds on equipment disposition have exceeded contract residual values, on average, in the CI, TS, and HC sectors.

EXPERIENCED SELLER/SERVICER
DLL Canada (an indirect wholly owned subsidiary of De Lage Landen International B.V. (DLL)) has operated in Canada for 20 years and has significant experience in the origination and servicing of equipment loans and leases. DLL, DLL Canada’s parent, has operated for 50 years and has a successful track record in the issuance and management of securitization programs in various markets, including seven transactions outstanding as at October 2019.

Notes:
The principal methodology is Rating Canadian Equipment Finance Securitization Transactions (October 2019), which can be found on dbrs.com under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to 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.

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

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