DBRS Morningstar Downgrades Ratings on Four and Maintains Under Review with Negative Implications Status on 10 Securities Issued by Amur Equipment Finance Receivables V LLC, VI LLC, and VII LLC

DBRS, Inc. (DBRS Morningstar) downgraded the ratings on the following classes of asset-backed securities (ABS) issued by Amur Equipment Finance Receivables V LLC (Series 2018-1) and Amur Equipment Finance Receivables VI LLC (Series 2018-2):

-- Amur Equipment Finance Receivables V LLC, Series 2018-1, Class F Notes to B (low) (sf) from B (sf)
-- Amur Equipment Finance Receivables VI LLC, Series 2018-2, Class D Notes to BBB (low) (sf) from BBB (sf)
-- Amur Equipment Finance Receivables VI LLC, Series 2018-2, Class E Notes to B (high) (sf) from BB (sf)
-- Amur Equipment Finance Receivables VI LLC, Series 2018-2, Class F Notes to CCC (high) (sf) from B (sf)

These ratings remain Under Review with Negative Implications, where they were placed on May 13, 2020. DBRS Morningstar also maintained the Under Review with Negative Implications status on the following securities issued by Amur Equipment Finance Receivables VI LLC (Series 2018-2) and Amur Equipment Finance Receivables VII LLC (Series 2019-1):

-- Amur Equipment Finance Receivables VI LLC, Series 2018-2, Class C Notes at A (sf)
-- Amur Equipment Finance Receivables VII LLC, Series 2019-1, Class B Notes at AA (sf)
-- Amur Equipment Finance Receivables VII LLC, Series 2019-1, Class C Notes at A (sf)
-- Amur Equipment Finance Receivables VII LLC, Series 2019-1, Class D Notes at BBB (sf)
-- Amur Equipment Finance Receivables VII LLC, Series 2019-1, Class E Notes at BB (sf)
-- Amur Equipment Finance Receivables VII LLC, Series 2019-1, Class F Notes at B (sf)

For more information on the May 13, 2020, rating actions, please refer to “DBRS Morningstar Places 10 Amur Equipment Finance Securities Under Review with Negative Implications” at https://www.dbrsmorningstar.com/research/360977/dbrs-morningstar-places-10-amur-equipment-finance-securities-under-review-with-negative-implications.

In a commentary titled “DBRS Morningstar’s Equipment Lease and Loan ABS Sector Outlook—Negative Amid Coronavirus” published on May 8, 2020, DBRS Morningstar discussed how the ongoing Coronavirus Disease (COVID-19) pandemic may adversely affect the equipment leasing ABS sector. DBRS Morningstar noted that the impact on each specific ABS transaction will vary depending on the relative strength of a specific originator’s underwriting platform, the collateral mix by asset type and obligor industry, and the transactions’ seasoning and available credit enhancement.

Based on the widespread shutdown of economic activity throughout the U.S. caused by the coronavirus pandemic, DBRS Morningstar anticipates the stress on domestic businesses will likely continue during the next several months. Consequently, DBRS Morningstar expects the performance of collateral securing the notes listed above to be adversely affected. In addition to the expected stress from the coronavirus pandemic, DBRS Morningstar’s rating actions take into account the respective transactions’ performance to date (based on June 17, 2020, remittance reports), which has been negatively affected by the recessionary downturn in the trucking industry throughout 2019 that began in the fourth quarter of 2018.

The rating actions by DBRS Morningstar are based on the following analytical considerations:

-- The respective levels of multiple coverage of the expected cumulative net loss, updated and adjusted for the effect of coronavirus outbreak, which are afforded, in each transaction, to each class of notes by the available credit enhancement.

-- DBRS Morningstar's assessment as to how collateral performance could deteriorate due to macroeconomic stresses brought about by the coronavirus pandemic. DBRS Morningstar updated a set of macroeconomic scenarios for select economies related to the coronavirus pandemic in its commentary “Global Macroeconomic Scenarios: July Update,” published on July 22, 2020. The July 22, 2020, commentary updates DBRS Morningstar's macroeconomic scenarios initially published on April 16, 2020.

-- The assumptions consider the moderate macroeconomic scenario outlined in the commentary. The moderate scenario assumes some success in containment of the coronavirus within Q2 2020 and a gradual relaxation of restrictions, enabling most economies to begin a gradual economic recovery in Q3 2020. This moderate scenario primarily considers two economic measures: declining GDP growth and increased unemployment levels for the year. The moderate and the adverse scenarios are being used in the context of DBRS Morningstar’s rating analysis, with the moderate scenario serving as the primary anchor for current ratings. For commercial asset classes, the GDP growth rate is intended to provide the basis for measurement of performance expectations.

-- Shorter expected duration of the coronavirus performance shock compared to the Great Recession of 2008–09, as projected in DBRS Morningstar's moderate scenario.

-- The extent of impact from the recession in the transportation industry on non-investment grade classes of notes, because of the transaction’s exposure to trucking industry and structural features such as subordination and sequential payment, even before the impact from coronavirus pandemic.

-- Significant amount of unrealized hard collateral repossessed and held by Amur Equipment Finance, Inc. (AEF), which may result in higher recoveries and lower realized losses in the future.

-- The level of deferred contracts and their influence on amortization profile and performance of each transaction.

-- There have been material changes in AEF origination strategies, underwriting framework, financed asset mix, and access to liquidity since the Great Recession of 2008–09, which DBRS Morningstar considered in assessing the additional economic stress related to the coronavirus pandemic.

-- The information provided to DBRS Morningstar by AEF with respect to the current market conditions and the impact of coronavirus outbreak on originations, underwriting, operations, and portfolio performance to date.

The ratings remain Under Review with Negative Implications. When a rating is placed Under Review with Negative Implications, DBRS Morningstar seeks to complete its assessment and remove the rating from this status as soon as appropriate. Upon the resolution of the Under Review status, DBRS Morningstar may confirm or downgrade the ratings on the affected classes.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
The principal methodology is the DBRS Morningstar Master U.S. ABS Surveillance (May 27, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.

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

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