Approximately $216MM securities affected

Moody’s Investors Service (Moody’s) has upgraded two classes of notes and affirmed two classes of notes issued by SCF Equipment Leasing 2017-1 LLC (SCF 2017-1). The transaction is a securitization of equipment loans and leases sponsored by Stonebriar Commercial Finance, LLC, which also acts as the servicer for the transaction. The equipment loans and leases are backed by collateral that include railcars, corporate aircraft, and commercial equipment.

The complete rating actions are as follows:
Issuer: SCF Equipment Leasing 2017-1 LLC

  • Equipment Contract Backed Notes, Class A, Affirmed A1 – previously on Dec 19, 2017 Affirmed A1
  • Equipment Contract Backed Notes, Class B, Affirmed Baa1 – previously on Dec 19, 2017 Upgraded to Baa1
  • Equipment Contract Backed Notes, Class C, Upgraded to Baa3 – previously on Dec 19, 2017 Affirmed Ba1
  • Equipment Contract Backed Notes, Class D, Upgraded to B1 – previously on Dec 19, 2017 Affirmed B3

Ratings Rationale

The upgrades were prompted by build-up in credit enhancement due to the sequential pay structure, overcollateralization and non-declining reserve account. The SCF 2017-1 transaction features an overcollateralization target of 10.25% of the original pool balance. In addition, the transaction has exhibited strong performance with no cumulative net loss to date.

Along with the strong performance, Moody’s continued to consider credit risks associated with the transaction, such as the substantial residual value risk. The transaction is exposed to the market value of the equipment if lessees return the equipment upon maturity of the leases. Residual values of the leased equipment have increased to approximately 33% of the outstanding pool from 23% of the pool that was outstanding at closing. The hard credit enhancement available for classes A and B are currently 38.5% and 32.2%, respectively, close to the transaction’s residual value exposure.

Residual risk in the transaction is partially mitigated by the relatively onerous return conditions under most of the leases, which incentivize the lessees to either renew the lease or purchase the equipment at the end of the lease term. However, lease renewals instead of equipment purchases would result in slower pay down of the notes, while classes A and B have final maturity dates of January and March 2023 respectively.

Moody’s also considered the passage of time since projected future asset values of the collateral were provided at the closing of the transaction. Over time, the age of the asset valuations may lead to volatility in the determination of recovery values of the loans and leases backing the transaction. To take this into consideration, Moody’s performed sensitivity analysis on the projected future asset values received at the closing of the transaction such as a 5% to 7.5% haircut to the asset values.

Below are key performance metrics (as of July 2018 distribution date) for the affected transaction. Performance metrics include pool factor which is the ratio of the current collateral balance and the original collateral balance at closing; and total hard credit enhancement (expressed as a percentage of the outstanding collateral pool balance) which typically consists of subordination, overcollateralization, and reserve fund as applicable.

Issuer — SCF Equipment Leasing 2017-1 LLC
Pool factor — 73.9%
Total hard credit enhancement:

Class A: 38.5%

Class B: 32.2%

Class C: 25.9%

Class D: 15.9%

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal
entity that has issued the rating.

*Press release was originally distributed directly by Moody’s.