DBRS Morningstar Finalizes Its Provisional Ratings on Atalaya Equipment Leasing Trust 2021-1 LLC

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of asset-backed notes (the Notes) issued by Atalaya Equipment Leasing Trust 2021-1 LLC (the Issuer):

-- $70,542,000 Class A-1 Notes at R-1 (high) (sf)
-- $118,223,000 Class A-2 Notes at AAA (sf)
-- $24,167,000 Class B Notes at A (sf)
-- $18,941,000 Class C Notes at BBB (sf)

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

(1) 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 the coronavirus 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 the coronavirus may nonetheless bring other risks to the forefront in coming months and years.

(2) Given the generally steady economic environment and healthy condition of the equipment leasing industry, which is manifested in 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 cumulative net loss (CNL) assumption for the transaction in consideration of the impact from the coronavirus pandemic.

(3) DBRS Morningstar’s respective stressed CNL hurdle rates of 27.70%, 19.41%, and 13.55% in the cash flow scenarios commensurate with the AAA (sf), A (sf), and BBB (sf) ratings, respectively, did not assign any credit to seasoning of collateral of approximately eight months as of the Cut-Off Date. In addition, DBRS Morningstar assigned no credit to any expected build-up in collateral coverage over the life of transaction.

(4) DBRS Morningstar assessed the stressed CNL hurdle rates at each rating level by blending the stressed net loss assumptions for the concentrated (including 23 obligors) and more granular portions of the collateral pool based on their share of the Aggregate Securitization Value as of the Cut-Off Date.

(5) The transaction’s exposure to unguaranteed booked residuals is rather limited at approximately 7.93% of the Aggregate Securitization Value as of the Cut-Off Date. DBRS Morningstar assigned a limited credit to residual realization proceeds, with such credit ranging from 40% to 70% in its AAA (sf) and BBB (sf) cash flow scenarios, respectively.

(6) The transaction’s capital structure and form and sufficiency of available credit enhancement. The subordination, overcollateralization, cash held in the Reserve Account, available excess spread, and other structural provisions create credit enhancement levels that are commensurate with the respective ratings for each class of Notes.

(7) The weighted-average (WA) yield for the collateral pool is approximately 7.82%. The Securitization Value of the Contracts in collateral pool is determined by discounting all leases and loans at either implied or actual applicable contract rate, thus, creating excess spread that may be available to support payments on the Notes.

(8) The transaction does not have a prefunding period.

(9) Collateral for the Notes includes medical evacuation helicopters, which, along with the related leases, are held in the Aircraft SPV. The membership interests in the Aircraft SPV were transferred to the Depositor and then to the Issuer. The Issuer assigned such leases and granted a first priority perfected security interest in such aircraft to the Indenture Trustee.

(10) The transaction is the first 144A term securitization initiated by Atalaya Capital Management LP (Atalaya) and sponsored by Atalaya Equipment Leasing Fund I LP (AELF). Atalaya has been operating its leasing business since 2009.

(11) DBRS Morningstar performed an operational risk review via telephone and deems AELF and Atalaya acceptable originators and servicers of equipment-backed leases and loans. AELF is the Servicer and Administrator, with GreatAmerica Portfolio Services Group, LLC, an experienced servicer of equipment-backed collateral, performing certain administrative functions on its behalf. U.S. Bank National Association is the Back-Up Servicer.

(12) Since inception, Atalaya’s equipment finance business has experienced a limited number of obligor defaults and low and intermittent amount of realized and expected losses.

(13) The collateral pool exhibits relatively high obligor concentrations, with the largest, five-largest, and 10-largest obligors accounting for approximately 7.7%, 35.5%, and 54.8%, respectively, of the Aggregate Securitization Value as of the Cut-Off Date. DBRS Morningstar assessed the credit quality of the largest obligors to be in the BB to CCC range, based on public ratings and internal credit estimates. The financed assets are of essential use to the applicable obligor, with the value of such assets in some cases supported by the independent third-party appraisals. The largest obligor industries are represented by healthcare (approximately 21.4% of the Aggregate Securitization Value at closing), information technology (19.0%), materials (15.1%), industrials (13.5%), and consumer discretionary goods and services (13.0%). The largest financed equipment categories comprise canning line (7.7%), helicopters (7.6%), Supermicro servers and other IT equipment (6.7%), remote operated vehicles (6.3%), medical and office equipment (5.4%), and imaging equipment (4.9%).

(14) The transaction is supported by an established structure and is consistent with DBRS Morningstar's Legal Criteria for U.S. Structured Finance methodology. Legal opinions covering true sale and nonconsolidation have also been provided.

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 methodologies are Rating U.S. Equipment Lease and Loan Securitizations (June 30, 2021) and Rating CLOs and CDOs of Large Corporate Credit (February 8, 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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