Morningstar DBRS Assigns Provisional Credit Ratings to ClickLease Equipment Receivables 2024-1 LLC

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes of notes to be issued by ClickLease Equipment Receivables 2024-1 LLC (CLICK 2024-1 or the Issuer):

-- $121,200,000 Class A Notes at AA (low) (sf)
-- $40,440,000 Class B Notes at A (low) (sf)
-- $40,560,000 Class C Notes at BBB (low) (sf)
-- $21,160,000 Class D Notes at BB (low) (sf)

The provisional credit ratings are based on the review by Morningstar DBRS of the following analytical considerations:

(1) ClickLease LLC (ClickLease or the Company) provides micro-ticket financing in form of operating leases primarily focusing on sub-prime or near-prime commercial obligors. To evaluate the likelihood of default by an obligor and structure key financing terms, ClickLease's automated underwriting process utilizes an empirically derived proprietary risk tiering algorithm.
The collateral for the CLICK 2024-1 transaction includes internally graded A, B, C, D, E, F and G credits, which are also classified and grouped by ClickLease as High Risk, Medium Risk and Low Risk depending on the type of financed equipment. Morningstar DBRS considered the impact from inclusion of the lower tiered and deemed "high risk" credits in its assumptions for the stressed cash flow scenarios.
As of the Cut-Off Date of April 30, 2024, the collateral pool comprised obligors internally graded A, B, C, D, E, F and G, which accounted, respectively, for 6.51%, 15.55%, 32.17%. 35.74%, 7.67%, 1.41% and 0.96% of ADCB of Initial Leases. In addition, obligors classified as Low Risk, Medium Risk and High Risk accounted for 64.77%, 20.76% and 14.47% of ADCB, respectively.

(2) The subordination, OC, 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 stressed cash flow scenarios, the credit enhancement can withstand the expected loss using Morningstar DBRS multiples of 2.75 times (x) with respect to the Class A Notes and 2.10x, 1.50x, and 1.30x with respect to the Class B, C, and D Notes, respectively.
CLICK 2024-1 relies on the expected loss coverage multiples for the Class A Notes, Class B Notes, Class C Notes, and Class D Notes that are below the Morningstar DBRS range of multiples set forth in the rating methodology for this asset class. Morningstar DBRS believes this is warranted, given the magnitude of expected cumulative net loss (CNL), company's focus on non-prime commercial credits, and structural features of the transaction.

(3) The Morningstar DBRS used the expected cumulative net loss (CNL) assumption of 20.86% in its stressed cash flow scenarios, assessed using the actual static pool performance data for ClickLease. In addition to the overall managed portfolio data, Morningstar DBRS considered the historical quarterly static pool vintage cumulative gross loss (CGL), recovery and CNL performance by internally assigned credit grade as well as risk classification. Morningstar DBRS also reviewed the quarterly static pool vintage performance related to the leases secured by utility trailers.
Morningstar DBRS'expected CNL assumption incorporates full credit to seasoning of the collateral pool, taking into account the relatively short original effective term of 43.81 months, substantial seasoning of collateral as of the Cut-Off Date of 10.46 months and the historical loss timing curve.

(4) The transaction assumptions consider Morningstar DBRS baseline macroeconomic scenarios for rated sovereign economies, available in its commentary Baseline Macroeconomic Scenarios For Rated Sovereigns March 2024 Update, published on March 27, 2024. These baseline macroeconomic scenarios replace Morningstar DBRS' moderate and adverse COVID-19 pandemic scenarios, which were first published in April 2020.

(5) The collateral pool as of the Cut-Off Date did not contain any significant concentrations of obligors or geographies and comprised a diversified mix of equipment types with moderate concentrations in utility trailers (34.3% of ADCB) and industrial equipment (13.6%). Weighted average (WA) non-zero FICO of the guarantors as of the Cut-Off Date was 650, and the WA effective yield - 34.2%.

(6) Aggregate discounted residual balance as of the Cut-Off Date was $19.9 million, or approximately 8.46% of the ADCB of collateral pool.
Booked residuals are given only 45% (AA) to 75% (BB) credit in the Morningstar DBRS stressed cash flow scenarios.

(7) ClickLease was founded and is led by industry veterans with many years of combined experience in equipment leasing and small business lending. On March 14, 2024, Morningstar DBRS conducted an operational risk onsite meeting with ClickLease and deemed the Company to be an acceptable originator and servicer of small-ticket lease contracts. Morningstar DBRS has reviewed Orion First Financial, LLC and believes it to be an acceptable backup servicer of the small-ticket equipment financing contracts.

(8) The legal structure and presence of legal opinions that will address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with ClickLease, and that the Indenture Trustee has a valid first-priority security interest in the assets. Morningstar DBRS also reviewed the transaction terms for consistency with Morningstar DBRS' Legal Criteria for U.S. Structured Finance.

Morningstar DBRS credit ratings on the Class A Notes, Class B Notes, Class C Notes, and Class D Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Note Interest and the Outstanding Amount of each class of Notes.

Morningstar DBRS credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, the contractual payment obligations that are not financial obligations are the payments related to the Servicer Indemnified Amounts.

Morningstar DBRS long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND 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 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 (January 23, 2024; https://dbrs.morningstar.com/research/427030).

Notes:
All figures are in U.S. dollars unless otherwise noted.  
 
The principal methodology applicable to the credit ratings is Rating U.S Equipment Lease and Loan Securitizations (October 22, 2023; https://dbrs.morningstar.com/research/422275/rating-us-equipment-lease-and-loan-securitizations)  
 
Other methodologies referenced in this transaction are listed at the end of this press release.  

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

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

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

This is a solicited credit rating. 

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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

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

The credit 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 (April 15, 2024), https://dbrs.morningstar.com/research/431204/rating-us-structured-finance-transactions

Operational Risk Assessment for U.S. ABS Servicers (March 21, 2024), https://dbrs.morningstar.com/research/430003/operational-risk-assessment-for-us-abs-servicers

Operational Risk Assessment for U.S. ABS Originators (March 21, 2024), https://dbrs.morningstar.com/research/430004/operational-risk-assessment-for-us-abs-originators

Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205

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