DBRS Morningstar Finalizes Provisional Rating on MP 2023 LLC

DBRS, Inc. (DBRS Morningstar) finalized its provisional rating on the following class of notes issued by MP 2023 LLC (the Issuer):

-- $235,300,000 Series 2023-1 Class A Secured Vessel Notes at A (sf)

RATING RATIONALE/DESCRIPTION
(1) Transaction capital structure, rating, and the form and sufficiency of available credit enhancement.
-- Overcollateralization and a fully funded cash liquidity reserve account provide credit enhancement levels that are commensurate with the rating on the Series 2023-1 Class A Secured Vessel Notes.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the rating addresses the timely payment of the Class A Interest Rate and the ultimate payment of principal by the Final Maturity Date. The transaction documents include provisions for the payment of additional interest amounts, accruing from the anticipated repayment date, and redemption premiums under certain circumstances. DBRS Morningstar’s rating does not address any such additional interest amounts, nor any redemption premiums. Failure to pay additional interest amounts is not an event of default.
-- The cash flows expected to be generated by the collateral pool under the stressed cash flow scenarios are sufficient to repay investors in accordance with the terms of the Related Documents.

(2) Inland marine vessels leased from Maritime Partners, LLC (the Company or Maritime Partners) are primarily operating in domestic Jones Act trade. The Jones Act is a federal law that regulates maritime commerce in the U.S. It requires goods shipped between ports in the U.S. to be transported on ships that are built in the United States and registered under the U.S. flag, and are owned and crewed by at least 75% U.S. citizens. With U.S. inland marine vessels being an important part of the U.S. economy, Maritime Partners has historically had over 99% of its fleet utilized and on lease.

(3) While the Company has been in operation since 2015, the executive management team has deep experience with maritime leasing, investing, operations, commercial management, and shipbuilding. Maritime Partners has experienced significant growth since its inception, including acquiring multiple companies in the industry.
-- DBRS Morningstar performed an onsite operational risk review of Maritime Partners and as a result considers them to be an acceptable manager and servicer of brown water vessels.

(4) The Company has historically had a utilization rate of 100% from inception through Q2 2020. During COVID, utilization dropped slightly to 98.4%. Although demand in the market decreased and actual vessel usage by operators dropped to less than 70%, Maritime Partners was not as affected given that utilization and lease obligations are not affected by actual vessel usage. Maritime Partners experienced neither customer defaults nor bankruptcies as a result of the pandemic. Even with the decreased demand, operators continued to make timely payments on charter hire.
-- Historically, the Company had to write-off only one receivable, in 2020. This write-off was related to a minor contract dispute and represented only ~0.06% of the charter revenue for the year.

(5) The collateral pool consists of 316 vessels on lease to 19 different charterers. All of the vessels are on long-term leases with a weighted average (WA) original charter term of 7.2 years and a WA remaining charter term of 4.0 years as of the Statistical Date. As a percentage of total initial appraised value (IAV), approximately 42% of the assets in the pool have charters expiring during or after 2028. The collateral backing the Series 2023-1 Notes is relatively young, with a WA age (by appraised value) of 9.2 years, while the vessels have useful lives of 25 years to 40 years. Additionally, the collateral is fairly evenly distributed across three main vessel types, which account for ~95.8% of IAV.

(6) Amongst the 19 charterers leasing vessels, the top two account for 54.2% of the IAV and 44.3% of the 316 vessel count. Excluding the top two, the remainder of the collateral pool is fairly diverse as a percentage of IAV, with the next largest concentration accounting for only 6.7%.

(7) While the transaction has no named backup servicer, U.S. Bank Trust Company, National Association (rated AA (high) by DBRS Morningstar) serves in the role of Transition Manager and is in place to assist with identifying and facilitating the implementation of a servicer replacement in the event it becomes necessary. Identifying a transition manager rather than engaging a formal backup servicer at the start of the transaction is not an uncommon practice in operating asset securitizations.

(8) The legal structure and legal opinions that address the true sale of the assets to the Issuer, the nonconsolidation of the Issuer with Maritime Partners, that the indenture trustee has a valid security interest in the assets, and consistency with DBRS Morningstar’s “Legal Criteria for U.S. Structured Finance.”

(9) The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: April 2023 Update,” published on April 28, 2023. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.

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 U.S. dollars unless otherwise noted.

The principal methodology applicable to the ratings is Rating Marine Container Securitizations (https://www.dbrsmorningstar.com/research/372949/rating-marine-container-securitizations; January 29, 2021).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

DBRS Morningstar materially deviated from its principal methodology when determining the rating assigned to the Series 2023-1 Class A Secured Vessel Notes by adjusting the following cash flow assumptions:
-- Recessions
-- Long-Term Lease Per Diem Rate Haircut
-- Long-Term Lease Re-lease Term
-- Haircut to Long-Term Lease Per Diem Rates at Renewal
-- Residual Realization Haircut
-- Direct Operating Expenses

These adjustments, and the resulting material deviation are warranted given analysis of historical data, relative asset cashflow and value stability based on limited supply of inland marine vessels with steady demand, and the unique regulatory environment.

Further details on such assumptions are included in the related rating report. https://www.dbrsmorningstar.com/research/414286.

The rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

DBRS, Inc.
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New York, NY 10005 USA
Tel. +1 212 806-3277

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

Rating U.S. Structured Finance Transactions (February 6, 2023)
https://www.dbrsmorningstar.com/research/409449/rating-us-structured-finance-transactions

Operational Risk Assessment for U.S. ABS Servicers (April 5, 2023) https://www.dbrsmorningstar.com/research/412303/operational-risk-assessment-for-us-abs-servicers

Operational Risk Assessment for U.S. ABS Originators (April 5, 2023) https://www.dbrsmorningstar.com/research/412302/operational-risk-assessment-for-us-abs-originators

Legal Criteria for U.S. Structured Finance (December 7, 2022) https://www.dbrsmorningstar.com/research/407008/legal-criteria-for-us-structured-finance

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].