DBRS Morningstar Confirms Ratings on Three BCC Funding Equipment Securitization Transactions

DBRS, Inc. (DBRS Morningstar) confirmed 11 ratings on securities issued by three equipment lease and loan securitization transactions sponsored by Balboa Capital Corporation (BCC). The reviewed transactions include the following:

-- BCC Funding XII LLC (the Loan)
-- BCC Funding XIV LLC (Series 2018-1)
-- BCC Funding XVI LLC (Series 2019-1)

The confirmations by DBRS Morningstar are based on the following analytical considerations:

-- DBRS Morningstar's assessment as to how collateral performance could deteriorate due to macroeconomic stresses brought about by the Coronavirus Disease (COVID-19) pandemic. As the pandemic spreads and its consequences unfold, it is difficult to anticipate the ultimate impact on the variables that drive credit quality. In the context of this highly uncertain environment and in the interest of transparency, DBRS Morningstar released a set of forward-looking macroeconomic scenarios for select economies related to the coronavirus in the commentary titled “Global Macroeconomic Scenarios: Implications for Credit Ratings” on April 16, 2020. The moderate and adverse scenarios are being used in the context of DBRS Morningstar’s rating analysis, with the moderate scenario serving as the primary anchor for the current ratings and the adverse scenario serving as a benchmark for the sensitivity analysis.

-- DBRS Morningstar’s moderate scenario assumes some success in containing the coronavirus within Q2 2020 and a gradual relaxation of restrictions, enabling most economies to begin a gradual economic recovery in Q3 2020. This moderate scenario primarily considers two economic measures: declining GDP growth and increased unemployment levels for the year.

-- The credit enhancement available to each rated class of Series 2018-1, Series 2019-1, and the Loan is expected to provide protection commensurate with the existing ratings even after upward revisions in the expected cumulative net loss (CNL) assumptions consistent with the moderate scenario.

-- A potentially material impact of U.S. government intervention on the ability of many small businesses to survive through the shutdown in the short term, until the economy starts to reopen. Signed into law on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act included a $349 billion appropriation for a significant expansion of guaranteed lending under Section 7(a) of the Small Business Act through a new Paycheck Protection Program (PPP). As part of the second round of federal stimulus, an additional $320 billion will be allocated to the PPP, with $50 billion appropriated for the Economic Injury Disaster Loan (EIDL) program and an additional $10 billion for the EIDL cash advance program. While the exact impact of these efforts by the U.S. government remains uncertain, they are expected to benefit small businesses and soften the impact of the coronavirus by allowing companies to keep employees, to be able to restart operations faster and more seamlessly, and to use other available liquidity to support nonpayroll business needs.

-- The information provided to DBRS Morningstar by BCC related to the impact of the coronavirus on originations, underwriting, operations, and portfolio performance to date.

-- The contemplated amendments to certain terms of the Loan, which have been reviewed by DBRS Morningstar.

-- The relative benefit of the collateral portfolios’ diversification by state, obligor industry, and equipment type.

-- Credit enhancement for Series 2018-1 and Series 2019-1 has built to their respective target levels, enabling the transactions to withstand DBRS Morningstar’s increased CNL expectations in the moderate scenario. The overcollateralization amount for the Loan is dynamic based on transaction experience and will therefore be subject to increase should transaction performance deteriorate.

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

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at https://www.dbrsmorningstar.com/research/357792.

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

The principal methodology is the DBRS Master U.S. ABS Surveillance Methodology (July 31, 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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