DBRS Morningstar Finalizes its Provisional Ratings on Pawnee Equipment Receivables (Series 2020-1) LLC Asset Backed Notes

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes (the Notes) issued by Pawnee Equipment Receivables (Series 2020-1) LLC (the Issuer):

-- $154,220,000 Class A Notes at AAA (sf)
-- $7,930,000 Class B Notes at AA (sf)
-- $6,950,000 Class C Notes at A (sf)
-- $8,220,000 Class D Notes at BBB (sf)
-- $6,165,000 Class E Notes at BB (sf)

The ratings are based on DBRS Morningstar’s review of the following analytical considerations:

-- Transaction capital structure, proposed ratings, and sufficiency of available credit enhancement, which includes overcollateralization, subordination, and amounts held in the reserve account to support the DBRS Morningstar-projected cumulative net loss (CNL) assumption under various stressed cash flow scenarios.
-- The respective coverage multiples of the expected CNL, adjusted for the effect of the Coronavirus Disease (COVID-19), which are afforded to each class of Notes by the available credit enhancement. Under various stressed cash flow scenarios, credit enhancement can withstand the expected loss using DBRS Morningstar multiples of 5.55 times (x) with respect to the Class A Notes and 4.55x, 3.65x, 2.60x, and 1.90x with respect to the Class B, C, D, and E Notes, respectively. DBRS Morningstar assumes an expected base-case CNL of 3.95% for this transaction.
-- The transaction assumptions consider DBRS Morningstar's set of macroeconomic scenarios for select economies related to the coronavirus outbreak, available in its commentary “Global Macroeconomic Scenarios: September Update,” published on September 10, 2020. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, which were last updated on September 10, 2020, and are reflected in DBRS Morningstar's rating analysis.
-- DBRS Morningstar adjusted its expected CNL assumption for the transaction in consideration of its moderate scenario outlined in the commentary, with the moderate scenario serving as the primary anchor for current ratings. The moderate scenario remains predicated on a more rapid return of confidence and a steady recovery heading into 2021. This moderate scenario primarily considers two economic measures: declining GDP growth and increased unemployment levels for the year. For commercial asset classes, the GDP growth rate is intended to provide the basis for a measurement of performance expectations.
-- The capabilities of Pawnee Leasing Corporation (Pawnee or the Company) with regard to originations, underwriting, and servicing. DBRS Morningstar performed an operational review of Pawnee and considers the entity to be an acceptable originator and servicer of equipment-backed lease and loan contracts. In addition, Vervent will be the Backup Servicer for this transaction. DBRS Morningstar reviewed Vervent and believes that the entity is an acceptable backup servicer.
-- The Asset Pool does not contain any significant concentrations of obligors, brokers, or geographies and consists of a diversified mix of the equipment types similar to those included in other small-ticket lease and loan securitizations rated by DBRS Morningstar.
-- The transaction does not have a prefunding period.
-- The Company focuses on small-ticket financing ($250,000 cap for prime credits and lower for nearprime and nonprime credits). No nonprime credits are included in the collateral for the Notes; however, 19.47% of the collateral consists of B+ credits (i.e., weighted-average nonzero guarantor Beacon Score of 699 as of the Statistical Calculation Date compared with a score of 740 for A credits as of the same date). Payment by automated clearing house is in place for 91.61% of B+ credit contracts compared with about 81.31% for A credit contracts. In addition, as of the Statistical Calculation Date, personal guarantees supported close to 100% of B+ collateral in the Statistical Asset Pool compared with approximately 83.45% of A credits.
-- The legal structure and presence of legal opinions that address the true sale of the assets to the Issuer; the nonconsolidation of the special-purpose vehicle with Pawnee; and that the Indenture Trustee, Deutsche Bank Trust Company Americas, has a valid first-priority security interest in the assets. DBRS Morningstar also reviews the transaction terms for consistency with its “Legal Criteria for U.S. Structured Finance.”

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

The principal methodology is Rating U.S. Equipment Lease and Loan Securitizations (July 7, 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.

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.dbrsmorningstar.com or contact us at [email protected].

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