DBRS Morningstar Assigns Provisional Ratings to BCC Funding XVII LLC

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of notes (the Notes) to be issued by BCC Funding XVII LLC (the Issuer):

-- $68,770,000 Class A-1 Notes at R-1 (high) (sf)
-- $71,944,000 Class A-2 Notes at AAA (sf)
-- $38,088,000 Class B Notes at A (high) (sf)
-- $8,464,000 Class C Notes at BBB (high) (sf)
-- $8,464,000 Class D Notes at BB (high) (sf)
-- $5,290,000 Class E Notes at B (sf)

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

(1) 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 (CNL) assumption under various stressed cash flow scenarios.

(2) The transaction assumptions consider DBRS Morningstar's set of macroeconomic scenarios for select economies related to the Coronavirus Disease (COVID-19), 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.

(3) 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 measurement of performance expectations.
-- The expected CNL of 4.60% used by DBRS Morningstar in the cash flow analysis was assessed using the actual static pool performance data (by origination channel, key equipment types, and original term bands) for Balboa Capital Corporation (Balboa Capital) and taking into account the expected asset pool’s collateral mix with respect to origination channels, equipment types, and amount of originations with obligors with less than two years of business history, as well as the original term profile of the collateral.
-- Cash flow assumptions assign no credit to seasoning of the collateral (approximately seven months for the initial discounted pool balance).

(4) The proposed concentration limits mitigating the risk of material migration in the collateral pool’s composition during the approximately three-month prefunding period.

(5) DBRS Morningstar deems Balboa Capital to be an acceptable originator and servicer of equipment-backed leases and loans. In addition, Vervent, Inc. (Vervent), which is an experienced servicer of equipment lease-backed securitizations, will be the backup servicer for the transaction.
-- The transaction includes a CNL trigger event, the breach of which is considered an Event of Servicing Termination and may cause servicing to be transferred to Vervent.

(6) The expected collateral for the transaction is granular with respect to obligor, vendor, and geographical concentrations. More than 79% of the obligors (by aggregate statistical discounted contract balance) have been in business for six or more years and approximately 41% 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 195.5. In addition, obligations comprising approximately 67.9% of an aggregate statistical discounted contract balance are supported by personal guarantees, and the payments on obligations accounting for approximately 94.2% are collected through automated clearing house.

(7) The legal structure and presence of legal opinions that will address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with Balboa Capital, that the trust has a valid first-priority security interest in the assets, and the consistency with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance.”

Balboa Capital provides equipment and working capital financing to small- and mid-size companies in the United States. It originates leases and loans through four principal channels: (1) vendor financing through partnerships with equipment vendors, (2) small-ticket originations through direct calling, (3) larger small-ticket direct originations to middle-market obligors and (4) a recently initiated broker channel. This transaction will include up to 2.60% of the aggregate statistical discounted contract balance of working capital loans.

The rating on the Class A-1 Notes reflects 69.0% of initial hard credit enhancement (as a percentage of collateral balance) provided by the subordinated notes in the pool (62.5%), the reserve account (1.5%), and OC (5.0%). The rating on the Class A-2 Notes reflects 35.0% of initial hard credit enhancement provided by the subordinated notes in the pool (28.5%), the reserve account (1.5%), and OC (5.0%). The ratings on the Class B, Class C, Class D, and Class E Notes reflect 17.0%, 13.0%, 9.0%, and 6.50% of initial hard credit enhancement, respectively.

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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