DBRS Morningstar Finalizes Provisional Ratings on Pawnee Equipment Receivables (Series 2021-1) LLC Asset Backed Notes

DBRS, Inc. (DBRS Morningstar) finalizes its provisional ratings on the following classes of notes (the Notes) issued by Pawnee Equipment Receivables (Series 2021-1) LLC (the Issuer):

-- $86,260,000 Class A-1 Notes at R-1 (high) (sf)
-- $198,740,000 Class A Notes at AAA (sf)
-- $28,310,000 Class B Notes at AA (sf)
-- $13,300,000 Class C Notes at A (sf)
-- $15,200,000 Class D Notes at BBB (sf)
-- $14,253,000 Class E Notes at BB (low) (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, 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 5.40 times (x) with respect to the Class A Notes and 4.40x, 3.55x, 2.50x, and 1.65x with respect to the Class B, C, D, and E Notes, respectively. DBRS Morningstar assumes an expected base-case CNL of 4.15% for this transaction.
-- The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios For Rated Sovereigns,” published on September 8, 2021. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020. The baseline macroeconomic scenarios reflect the view that, although COVID-19 remains a risk to the outlook, uncertainty around the macroeconomic effects of the pandemic has gradually receded. Current median forecasts considered in the baseline macroeconomic scenarios incorporate some risks associated with further outbreaks, but remain fairly positive on recovery prospects given expectations of continued fiscal and monetary policy support. The policy response to COVID-19 may nonetheless bring other risks to the forefront in the coming months and years.
-- Given the expectation of generally improving economic environment and the strong rebound in delinquency and charge-off performance metrics for equipment lessors following the initial negative impact from the coronavirus, DBRS Morningstar does not apply any adjustments to its expected CNL assumption for the transaction in consideration of the impact from the COVID-19 pandemic.
-- 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 acts as 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 Company focuses on small-ticket financing ($500,000 cap for prime credits and lower for near prime and nonprime credits). No nonprime credits is included in the collateral for the Notes; however, 24.28% of the collateral consists of B+ credits (with the weighted-average nonzero guarantor Beacon Score of 714 as of the Statistical Calculation Date compared with a score of 763 for A credits as of the same date). Payment by automated clearing house is in place for 95.05% of B+ credit contracts compared with about 75.02% for A credit contracts. In addition, as of the Statistical Calculation Date, personal guarantees supported close to 99.90% of B+ collateral in the Statistical Asset Pool compared with approximately 86.81% for 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 reviewed 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 can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating U.S. Equipment Lease and Loan Securitizations (June 30, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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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