Morningstar DBRS Takes Credit Rating Actions on Three Pawnee Equipment Receivables LLC Transactions

DBRS, Inc. (Morningstar DBRS) reviewed its credit ratings on 14 classes of notes issued by three Pawnee Equipment Receivables LLC transactions. Of the 14 classes reviewed, Morningstar DBRS upgraded its credit ratings on nine classes and confirmed its credit ratings on five classes.

The credit rating confirmations are based on the following analytical considerations:

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

-- The currently available hard credit enhancement in the form of overcollateralization, subordination (as applicable), and amounts of deposit in the cash reserve account, as well as the change in the level of protection afforded by each form of credit enhancement since the closing of each transaction.

-- For Pawnee Equipment Receivables (Series 2020-1) LLC and Pawnee Equipment Receivables (Series 2021-1) LLC, losses are tracking below Morningstar DBRS’ initial base-case cumulative net loss (CNL) expectations. The current level of hard credit enhancement is sufficient to support Morningstar DBRS’ projected remaining CNL assumption at a multiple of coverage commensurate with the credit ratings.

-- For Pawnee Equipment Receivables (Series 2022-1) LLC, losses are tracking above Morningstar DBRS’ initial base-case CNL expectation. However, because of the transaction structure, credit enhancement has increased for all classes, mitigating the weaker-than-expected collateral performance. The current level of hard credit enhancement is sufficient to support Morningstar DBRS’ projected remaining CNL assumption at a multiple of coverage commensurate with the credit ratings. Performance is expected to stabilize as the quality of the remaining pool has less exposure to weaker transportation credits and ongoing recovery efforts by the servicer.

-- The relative benefit from obligor and geographic diversification of collateral pools.

-- The transaction parties’ capabilities with regard to origination, underwriting, and servicing.

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

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030 (January 23, 2024).

Notes:
The principal methodology applicable to the credit ratings is Morningstar DBRS Master U.S. ABS Surveillance (February 22, 2024), https://dbrs.morningstar.com/research/428506.

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

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

These are solicited credit ratings.

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

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The credit rating methodologies used in the analysis of these transactions can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Operational Risk Assessment for U.S. ABS Servicers (February 22, 2024), https://dbrs.morningstar.com/research/428505

-- Operational Risk Assessment for U.S. ABS Originators (February 22, 2024), https://dbrs.morningstar.com/research/428504

-- Legal Criteria for U.S. Structured Finance (December 7, 2023), https://dbrs.morningstar.com/research/425081

-- Rating U.S. Structured Finance Transactions (February 22, 2024), https://dbrs.morningstar.com/research/428503

-- Rating U.S. Equipment Lease and Loan Securitizations (October 22, 2023), https://dbrs.morningstar.com/research/422275

For more information on these credits or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.