NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings and Rating Outlooks to the class A notes issued by MMAF Equipment Finance LLC 2014-A:
--$100,000,000 class A-1 notes 'F1+sf';
--$134,000,000 class A-2 notes 'AAAsf;' Outlook Stable;
--$140,000,000 class A-3 notes 'AAAsf'; Outlook Stable;
--$148,000,000 class A-4 notes 'AAAsf;' Outlook Stable;
--$95,000,000 class A-5 notes 'AAAsf'; Outlook Stable;
--$111,380,000 class A-6 notes 'AAAsf'; Outlook Stable.
Fitch has published its presale report available to all investors on its website at 'www.fitchratings.com'.
Key Rating Drivers:
Stronger Credit Quality/Equipment Diversification: MMAF 2014-A is backed primarily by investment-grade (IG) obligors (87%). The obligor concentrations are notably larger due to the large increase in the U.S. government (US Gov.) concentration, but the obligor credit quality is stronger than that of 2013-A. There are 14 equipment types from 18 industries, and the pool is geographically diverse. The weighted average (WA) remaining term is 132.3 months, up notably from 2013-A (90.4 months).
Material US Gov. Concentration: The initial largest obligor is US Gov. (29.4%), and concentration is expected to rise to 48.6% by year-end (YE) 2014 and increase materially as the pool amortizes. Fitch took this risk into account in its analysis of 2014-A and may directly credit-link the ratings to the US Gov. sovereign rating as concentrations increase.
Strong Performance and Servicing: MMAF's portfolio and securitizations have performed consistently, with virtually no delinquencies and minimal losses to date, a 0.0% turn-in rate and consistent residual realization rates over 100%. MMAF demonstrates adequate abilities as an underwriter and servicer, as evidenced by this historical performance. Portfolio Financial Servicing Company (PFSC) is the sub/backup servicer for 2014-A.
Sufficient Enhancement: Total hard credit enhancement (CE) for the class A notes has increased to 11.00%, driven by the larger US Gov. concentration (versus 10.25% in 2013-A). CE is sufficient to support the loss coverage levels consistent with the expected ratings. Additionally, the structure will benefit from expected initial excess spread of 0.94%.
Strong Parent: Fitch rates Massachusetts Mutual Life Insurance Company (MassMutual), MMAF's parent, 'AA/F1+'/Stable Outlook. Babson Capital Management LLC (Babson) is the performance guarantor for 2014-A and manages MMAF's operations actively.
Integrity of Legal Structure: The legal structure of the transaction provides that a bankruptcy of MMAF would not impair the timeliness of payments on the securities.
Unanticipated increases in the frequency of defaults or decreases in recovery rates could produce loss levels higher than the base case and could result in potential rating actions on the notes. Fitch evaluated the sensitivity of the ratings to increased obligor defaults in the portfolio by applying 'CCC' ratings to the unrated obligors in the portfolio, stressed down from the 'B' rating applied under the base recommended scenario. Additionally, recoveries were stressed by applying a stress of 50% to the base recovery rates. Fitch's analysis found that the transaction displays relatively little sensitivity to increased obligor defaults and decreased recovery rates. In both cases, the notes showed minimal rating sensitivity.
Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in 'MMAF Equipment Finance LLC 2014-1 - Appendix'. This R&W is compared to those of typical R&W for the asset class as detailed in the special report 'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' dated April 17, 2012.
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Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 20, 2014);
--'Global Rating Criteria for Corporate CDOs' (Aug. 12, 2013);
--'Criteria for Rating U.S. Equipment Lease and Loan ABS' (Dec.19, 2013)
--'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance' (April 17, 2012)
--'MMAF Equipment Finance LLC 2014-1' (May 27, 2014)
--'MMAF Equipment Finance LLC 2014-1 - Appendix' (May 27, 2014)
Applicable Criteria and Related Research:
MMAF Equipment Finance LLC 2014-A (US ABS)
Representations, Warranties, and Enforcement Mechanisms in Global
Structured Finance Transactions
Criteria for Rating U.S. Equipment Lease and Loan ABS
Global Rating Criteria for Corporate CDOs
Global Structured Finance Rating Criteria
MMAF Equipment Finance LLC 2014-A - Appendix