Morningstar DBRS Confirms Stonebriar Finance Holdings LLC Long-Term Credit Rating at BBB; Trend Stable

DBRS, Inc. (Morningstar DBRS) confirmed the credit ratings of Stonebriar Finance Holdings LLC (Stonebriar or the Company) and related entities, including the Company's Long-Term Issuer Rating of BBB, SCF Funding LLC's Guaranteed Long-Term Senior Debt rating of BBB, SCF Preferred Equity, LLC's Long-Term Issuer Rating of BBB and Perpetual Preferred Shares rating of BB (high). The trend on all ratings is Stable. The Company's Intrinsic Assessment (IA) is BBB, while its Support Assessment is SA3 meaning that timely systemic support is not expected. As a result of the SA3 designation, the final credit rating of Stonebriar is equalized with its IA. SCF Funding LLC's Guaranteed Long-Term Senior Debt credit rating benefits from a guarantee from Stonebriar, and as a result is equalized to the Long-Term Issuer Rating of Stonebriar.

KEY CREDIT RATING CONSIDERATIONS
The Company's credit ratings reflect a soundly run commercial equipment finance franchise, underpinned by a diverse customer base across multiple industries and a highly capable senior management team. Earnings generation reflects increasing net interest margin, benefiting from higher origination levels. Although primarily secured, the Company's funding has become more diverse over the last few years, including increasing levels of senior unsecured debt, driving higher levels of unencumbered assets and enhancing its financial flexibility. Capitalization remains acceptable given Stonebriar's solid earnings generation and sound risk position. The Stable trend reflects our view that the Company's credit fundamentals will remain sound going forward. That said, downside risks include the potential for tariffs and trade disputes to negatively impact the U.S. economy and corporate demand for equipment.

CREDIT RATING DRIVERS
Over the longer-term, a further reduction in asset encumbrance combined with lower leverage while maintaining good earnings generation and sustained sound asset performance would result in a credit ratings upgrade. Meanwhile, a significant contraction in its cushion relative to its leverage covenant requirement, or a sustained deterioration in profitability would result in a credit ratings downgrade.

CREDIT RATING RATIONALE
Franchise Building Block (BB) Assessment: Good / Moderate
Stonebriar's soundly run commercial equipment finance franchise provides both secured loans and operating leases for large ticket equipment to middle market customers across a wide range of industries. The senior management team is highly experienced and maintains strong industry and institutional knowledge as well as deep relationships. Several members of the team have worked together for over thirty years at various entities in the equipment finance sector. Of note, and in connection with the January 2025 restructuring of its parent, Eldridge Industries (Eldridge), Stonebriar employees are now employees of Eldridge Credit Advisors (ECA). The Company's employee costs along with most operating expenses have been transitioned to ECA. For services rendered in managing Stonebriar, ECA charges a management fee based on assets under management.

Earnings Building Block (BB) Assessment: Good
Stonebriar's earnings generation capacity is good, underpinned by sound earning asset growth, driven by higher levels of originations, including record levels in 2024. Despite higher funding costs, the Company's net interest margin (total portfolio revenue less interest expense) continues to trend upwards reflecting Stonebriar's ability to increase rates on new originations. Fee income in 2024 was stable YoY, but increased in Q1 2025, bolstered by a nonrecurring lease termination payment and a pre-payment penalty related to two distinct customers. Additionally, earnings continue to benefit from Stonebriar's modest credit costs. Going forward we anticipate solid earnings generation capacity to remain supportive of the Company's credit ratings.

Risk Building Block (BB) Assessment: Good
The Company maintains a sound risk profile, including solid credit and asset performance. Since its formation in 2015, Stonebriar has only reported modest net credit losses, reflecting its conservative underwriting position including well-structured and conservative originations, the essential nature of the equipment that it finances, its diverse customer base, and its strong servicing platform. We note that customer concentrations have moderated in recent years, in part benefiting from a broadening of its customer base and its dedicated syndication partnership, Granite Park, which acquires portions of its originations. On a forward-looking basis, we expect Stonebriar's risk position will remain sound and credit costs modest.

Funding and Liquidity Building Block (BB) Assessment: Moderate
Credit ratings consider the Company's primarily secured funding position, including securitizations and draws from its secured revolving credit facility. Positively, Stonebriar has materially grown its unsecured funding position over the last few years, which has led to higher levels of unencumbered assets and improved financial flexibility. Lastly, the Company's liquidity profile is acceptable, including unrestricted cash and available capacity under its revolving credit facilities.

Capitalization Building Block (BB) Assessment: Moderate
With its solid earnings generation and a sound risk position, Stonebriar's capitalization is acceptable. Importantly, the Company's balance sheet leverage is manageable and comfortably below covenant requirements.

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 (May 16, 2025) https://dbrs.morningstar.com/research/454196 in its consideration of ESG factors.

Notes:
All figures are in US dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Non-Bank Financial Institutions (November 19, 2024) https://dbrs.morningstar.com/research/443208. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196 in its consideration of ESG factors.

The following methodology has also been applied:

Morningstar DBRS Global Corporate Criteria (February 03, 2025)
https://dbrs.morningstar.com/research/447186

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

The primary sources of information used for these credit ratings include Morningstar, Inc. and Company documents.

Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings was of satisfactory quality.

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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS's trends and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit dbrs.morningstar.com.

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