DBRS Morningstar Finalizes Provisional Ratings on Crossroads Asset Trust 2022-A

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes (the Notes) issued by Crossroads Asset Trust 2022-A:

-- $134,050,000 Class A Notes at AAA (sf)
-- $9,275,000 Class B Notes at AA (sf)
-- $7,000,000 Class C Notes at A (sf)
-- $10,675,000 Class D Notes at BBB (sf)

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

-- The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary Baseline Macroeconomic Scenarios For Rated Sovereigns - December 2022 Update, published on December 21, 2022. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse COVID-19 pandemic scenarios, which were first published in April 2020.

-- DBRS Morningstar’s baseline cumulative net loss (CNL) assumption of 4.70% considered the collateral pool as of the initial cut-off date and the transaction’s concentration limits.

-- Crossroads Equipment Lease & Finance, LLC (Crossroads or the Company) participates in the California Capital Access Program for Small Business (CalCAP), which is a program sponsored by the California Pollution Control Financing Authority designed to encourage financial institutions to make loans to small businesses that have difficulty obtaining financing. CalCAP is a loan loss reserve program, which provides coverage on enrolled loans subject to the satisfaction of program conditions. As a CalCAP participant, Crossroads has the option to enroll loans satisfying CalCAP eligibility criteria into the program upon origination. Any loss on a charged-off financed unit enrolled by Crossroads in CalCAP may be covered by funds in Crossroads’ loan loss reserve account established by CalCAP.

-- Up to 27.50% of the Aggregate Securitization Value may be represented by financed units enrolled in CalCAP. Although Crossroads is required under the Sale and Servicing Agreement to deposit into the Collection Account amounts released to the Servicer from the loss reserve account (CalCAP Loss Payment) and allocable to a financed unit, none of the Issuing Entity, Grantor Trust, or Indenture Trustee will have a security interest in such loss reserve account. Consequently, while DBRS Morningstar views the availability of CalCAP Loss Payments as providing additional benefit to the holders of the Notes, it did not formally incorporate the historical loss mitigation impact from the CalCAP loss reserve account into its baseline CNL assumption.

-- 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 the Notes. Under various cash flow scenarios, the credit enhancement available to the transaction can withstand the stressed expected loss using target multiples of 5.25 times (x) with respect to the Class A Notes, 4.25x with respect to the Class B Notes, 3.35x with respect to the Class C Notes, and 2.45x with respect to the Class D Notes.

-- The Securitization Rate for the financed unit pool as of the Initial Cut-off Date was 10.541%, resulting in substantial excess spread at closing, given the servicing fee, transaction fees, and interest expenses.

-- No contracts in a deferral status will be included in the financed unit pool as of the applicable cut-off date.

-- DBRS Morningstar performed a telephone operational risk review and deems Crossroads to be an acceptable originator and servicer of equipment-backed leases and loans. GreatAmerica Portfolio Services Group, LLC, an experienced servicer of equipment-backed collateral, will be the Backup Servicer for the Transaction.

-- The financed unit pool is granular but has approximately 48% of its obligor concentration in California, which was considered in DBRS Morningstar’s data review. Overall, more than 80% of all transactions underwritten by Crossroads have a personal guarantee requirement, 90% of transactions come with a down payment (which is held for term of the financing), and approximately 90% of customers pay through an automated clearing house.

-- 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 non-consolidation were also provided.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/ Social/ Governance factor(s) that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

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

The principal methodology is Rating U.S. Equipment Lease and Loan Securitizations (July 1, 2022), 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.

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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