CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign the following ratings and Rating Outlooks to the notes issued by Macquarie Equipment Funding Trust 2014-A upon closing of the transaction:
--$115,000,000 class A-1 notes 'F1+sf';
--$75,000,000 class A-2 notes 'AAAsf'; Outlook Stable;
--$69,808,000 class A-3 notes 'AAAsf'; Outlook Stable;
--$16,530,000 class B notes 'Asf'; Outlook Stable;
--$9,357,000 class C notes 'BBBsf'; Outlook Stable.
Fitch has published its presale report available to all investors on Fitch's website at 'www.fitchratings.com' or by clicking on the links.
Key Rating Drivers:
Strong Credit Quality and Strong Performance: 2014-A is backed by mostly investment-grade (IG) obligors (50.22% of the pool). Additionally, Macquarie Equipment Finance Inc.'s (MEF) managed portfolio and securitization have performed well, with minimal losses to date and residual realizations consistently over 100%, which may imply strong credit quality of unrated obligors.
Increase in Non-Rated Obligors: The 2014-A transaction has a lower concentration of rated obligors (59%) compared to 2012-A (71%). However, the weighted average rating of 'A-/BBB+' on the rated portion of the pool is consistent with 2012-A. Furthermore, due to the increase in obligors, 2014-A is marginally more diversified in terms of obligor concentrations with the top 20 at 42.24% relative to 43.85% in 2012-A.
Sufficient Enhancement: Initial hard credit enhancement (CE) levels are 17.20%, 11.90%, and 8.90% for the class A, B, and C notes, respectively. Initial excess spread totals approximately 2.49%. The proposed levels are sufficient to support the loss coverage levels consistent with the assigned ratings for all classes.
Quality Underwriting and Servicing Platform: MEF demonstrates capable abilities as an underwriter and servicer, as evidenced by the concentration of investment grade (IG) obligors in 2014-A, as well as the historical loss and residual realization performance of their securitizations and the managed portfolio.
Strong Parent: Fitch rates Macquarie Bank Limited (MBL), MEF's parent, 'A/F1'/Stable Outlook. MBL guarantees the servicing performance of MEF for 2014-A.
Integrity of Legal Structure: The legal structure of the transaction provides that a bankruptcy of MEF 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 largest 100 unrated obligors in the portfolio, stressed down from the 'B' rating applied under the base recommended scenario. Additionally, recoveries were stressed to zero. Fitch's analysis found that the transaction displays some sensitivity to increased obligor defaults and limited sensitivity to the recovery rates.
Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in 'Macquarie Equipment Funding Trust 2014-A - 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' (July 25, 2014);
--'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);
--'Macquarie Equipment Funding Trust 2014-A' (Aug. 14, 2014);
--'Macquarie Equipment Funding Trust 2014-A - Appendix' (Aug. 14, 2014).
Applicable Criteria and Related Research: Macquarie Equipment Funding Trust 2014-A
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