DBRS Morningstar Finalizes its Prov. Rating on SCF’s Fixed-Rate Reset Series A Pref’s at BB; Stable

DBRS, Inc. (DBRS Morningstar) finalized its provisional rating of BB with a Stable trend on SCF Preferred Equity, LLC’s (SCF Preferred) 7.5% Fixed-Rate Reset Cumulative Preferred Shares, Series A. DBRS Morningstar has assigned the rating equal to SCF Preferred’s Long-Term Issuer Rating of BBB (low) less two notches, which is consistent with DBRS Morningstar’s standard notching for preferred shares.

Following the review of documentation associated with the offering, DBRS Morningstar confirmed that the terms of the issuance are consistent with those reviewed at the time the provisional rating was assigned on August 10, 2021. For further details on the provisional rating, please see the DBRS Morningstar press release entitled “DBRS Morningstar Assigns a Prov. Rtg of BB to SCF Preferred’s Series A Pref. Shares; Trend Stable.”

Given solid demand, SCF will issue $227 million of the Cumulative Perpetual Preferred Shares (Shares), up from initial expectations of $100 million to $150 million. The net proceeds from the issuance will be used to purchase the Class P Units issued by Stonebriar Finance Holdings LLC (the Company), which have substantially the same payment terms (other than with respect to certain fees and expenses and tax matters) as the Shares. The Company intends to use the proceeds from the sale of the Class P Units to SCF Preferred for general corporate purposes.

RATING DRIVERS
Consistent expansion in earnings with appropriate returns, while maintaining sound credit and asset performance and balance sheet leverage below 5.0x, would result in an upgrade in the ratings. A significant deterioration in the Company's credit or asset performance, weakening earnings generation, or a reduced cushion relative to its leverage covenant, would lead to a downgrade.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is the Global Methodology for Rating Non-Bank Financial Institutions (September 29, 2020): https://www.dbrsmorningstar.com/research/367510/global-methodology-for-rating-non-bank-financial-institutions. Other applicable methodologies include the DBRS Morningstar Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (November 2, 2020): https://www.dbrsmorningstar.com/research/369165/dbrs-morningstar-criteria-preferred-share-and-hybrid-security-criteria-for-corporate-issuers, and DBRS Morningstar Criteria – Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021): https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar materially deviated from the Preferred Share and Hybrid Security Criteria for Corporate Issuers methodology when determining the equity treatment for SCF Preferred Equity LLC’s, Perpetual Preferred Shares. This methodology is not applicable to nonbanking financial institutions. The material deviation is warranted given the commonalities of preferred shares issued by nonbanking financial institutions and corporates.

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.

The primary sources of information used for this rating include Company Documents. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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