Morningstar DBRS Assigns Provisional Credit Ratings to OWN Equipment Fund I LLC

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes of notes to be issued by OWN Equipment Fund I LLC (the Issuer):

-- $381,000,000 Class A Notes at (P) A (sf)
-- $19,000,000 Class B Notes at (P) BBB (low) (sf)

CREDIT RATING RATIONALE/DESCRIPTION
The provisional credit ratings are based on the review by Morningstar DBRS of the following analytical considerations:

(1) The issuance of the Notes represents the second asset-backed security (ABS) issuance of equipment managed by EquipmentShare.com Inc (EQS). The ratings address the timely payment of interest and the ultimate payment of principal by the Legal Final Maturity Date.
(2) The transaction capital structure, proposed credit ratings, and form and sufficiency of available credit enhancement.
-- The Notes benefit from credit enhancement consisting of overcollateralization, subordination, and a reserve account. A cash reserve account established for the transaction and sized at four months of interest plus fees and expenses is meant to ensure that an appropriate amount of senior expense and interest can be covered during the assumed liquidation period.
-- The transaction also has the benefit of an Expense Account that will be funded at closing with $1.14 million. The Expense Account will be used to make payments of property taxes and insurance premiums relating to the equipment when due. Amounts periodically deposited into the Expense Account will be revised on a quarterly and annual basis based on estimated property taxes and insurance premium amounts, respectively. Amounts periodically deposited into the Expense Account will be revised (a) quarterly, with respect to property taxes and (b) annually, with respect to insurance premium amounts, based on changes in estimates.
(3) The collateral quality and historical value volatility performance.
(4) Morningstar DBRS conducted an operational risk review of EQS and, as a result, considers the company to be an acceptable Equipment Manager and Servicer.
(5) Borrowing Base Test: The Aggregate Portfolio Value (APV) will be the lower of the equipment's aggregate net orderly liquidation value (NOLV) and its aggregate net book value (NBV), calculated on a monthly basis. If the APV is less than the aggregate Note balance divided by 79.40%, then one or more cures would need to be applied to keep the borrowing base in compliance.
(6) Consideration of increased depreciation rate (versus historical experience) in the transaction that provides for accelerated paydown of Notes in the context of the relationship between decreasing note balances and APV.
(7) Consideration of the relatively young age of the equipment. Generally, younger equipment would be expected to produce somewhat higher sales proceeds, a credit positive with respect to the subject portfolio.
(8) Consideration of monthly dynamic adjustment provisions, specifically (A) inclusion of updated disposition expense estimates in monthly appraisals, (B) inclusion of updated expense estimates in calculation of the expense account requirement, and (C) inclusion of updated equipment values vis-à-vis book value.
(9) The transaction assumptions consider Morningstar DBRS' baseline macroeconomic scenarios for rated sovereign economies, available in its commentary "Baseline Macroeconomic Scenarios for Rated Sovereigns September 2024 Update," published on September 25, 2024. These baseline macroeconomic scenarios replace Morningstar DBRS' moderate and adverse COVID-19 pandemic scenarios, which were first published in April 2020.
(10) Specific proceeds haircuts on equipment built by non-investment-grade manufacturers were not applied since (A) the historical data used covered the industry as a whole and (B) construction equipment brands are fairly well-known and values are less driven by credit quality of the manufacturer. Notwithstanding the foregoing, a large proportion of the portfolio was built by investment-grade manufacturers.
(11) Morningstar DBRS materially deviated from its principal methodology when determining the ratings assigned to the Notes by adjusting certain cash flow assumptions to better align them with the rental equipment assets being securitized. These adjustments, and the resulting material deviation are warranted given the unique aspects of the transaction, the adequacy and analysis of historical data from reliable sources specific to the industry, similarity of the equipment rental space vis-à-vis the car rental space, and comparable transaction legal structure.
(12) The legal structure and its consistency with Morningstar DBRS' "Legal Criteria for U.S. Structured Finance" methodology, the provision of legal opinions that address the treatment of the operating lease as a true lease, a true sale, the non-consolidation of the special-purpose vehicles with the Co-Sponsor and Equity Sponsor, and that the Issuer has a valid first-priority security interest in the assets.

Morningstar DBRS' credit ratings on the Class A Notes and Class B Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are interest on the associated note balance of each of the Class A Notes and Class B Notes, and the note balance of the Class A Notes and Class B Notes.

Morningstar DBRS' credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, interest on any unpaid interest on the Class A Notes and Class B Notes.

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.

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 Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

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

The principal methodology applicable to the credit ratings is Rating U.S. Rental Car Securitizations (August 6, 2024) https://dbrs.morningstar.com/research/437564.

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

Morningstar DBRS materially deviated from its principal methodology when determining the credit ratings assigned to the Class A Notes and Class B Notes by applying the following assumptions that vary from those designated in the Rating U.S. Rental Car Securitizations methodology.

-- Bankruptcy Stay Period
-- Liquidation Period Following Stay
-- Values During a Liquidation
-- Transaction Funding Costs and Expenses

The material deviation is warranted given the unique aspects of the transaction and legal structure, the adequacy and analysis of historical data from reliable sources specific to the industry, similarity of the equipment rental space vis-à-vis the car rental space, and comparable transaction legal structure.

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 the final credit ratings on the above-mentioned securities are 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://dbrs.morningstar.com/about/methodologies.

-- Rating U.S. Equipment Lease and Loan Securitizations (August 6, 2024), https://dbrs.morningstar.com/research/437575
-- Rating U.S. Structured Finance Transactions (November 18, 2024) https://dbrs.morningstar.com/research/443136
-- Operational Risk Assessment for U.S. ABS Originators and Servicers (December 5, 2024) https://dbrs.morningstar.com/research/444162
-- Legal Criteria for U.S. Structured Finance (December 3, 2024) https://dbrs.morningstar.com/research/444064

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