KBRA Issues Preliminary Ratings for SCF Equipment Leasing 2025-1

KBRA Assigns Preliminary Ratings to SCF Equipment Leasing 2025-1 ABS Transaction

Kroll Bond Rating Agency (KBRA) has announced preliminary ratings for nine classes of notes issued by SCF Equipment Leasing 2025-1 LLC and SCF Equipment Leasing Canada 2025-1 Limited Partnership, collectively known as SCF 2025-1. This transaction represents an asset-backed securities (ABS) issuance supported by equipment leases and loans, marking a significant milestone for its sponsor, Stonebriar Commercial Finance LLC (SCF).

Overview of SCF 2025-1

The SCF 2025-1 transaction is the 13th equipment ABS transaction sponsored by SCF, a privately owned commercial equipment finance company headquartered in Plano, Texas. Established in 2015, SCF has become a key player in the equipment finance sector, originating leases and loans backed by essential-use assets. These assets span multiple industries, including marine, rail, aircraft, transportation, medical, energy, and manufacturing equipment.

In addition to sponsoring SCF 2025-1, SCF also services the Granite Park 2023-1 transaction, an ABS deal backed by collateral originated by the company. This demonstrates SCF’s extensive expertise and leadership in managing diverse and complex portfolios of equipment-backed securities.

Collateral Composition

The SCF 2025-1 transaction is secured by several key components:

  1. Equipment Lease and Loan Contracts: The transaction includes a portfolio of lease and loan contracts, along with related equipment and collateral.
  2. Portfolio Interest Certificates: These certificates represent 100% beneficial interest in leases of titled motor vehicles and the associated equipment.
  3. Equity Interests in Aircraft Ownership Entities: Limited-purpose entities formed to own aircraft contribute equity interests to the transaction.

The portfolio supporting SCF 2025-1 comprises essential-use assets, which are vital for the operation of the obligors’ businesses. The contracts are directly or indirectly originated by SCF or its affiliate, Stonebriar Commercial Finance Canada Inc. (SCF Canada).

Performance Metrics

As of December 31, 2024, SCF has funded approximately $14 billion in investments since its inception, with a net investment of $6.1 billion. These figures underscore the company’s consistent growth and strong market presence in the equipment finance industry.

Key Transaction Details

SCF 2025-1 will issue nine classes of notes, including a short-term money market tranche. To enhance credit quality, the transaction incorporates multiple credit enhancement features:

  • Overcollateralization: Ensures the collateral exceeds the value of the issued notes.
  • Excess Spread: Provides an additional cushion of cash flow to absorb potential losses.
  • Reserve Account: Acts as a safety net to cover shortfalls in payments.
  • Subordination for Senior Classes: Prioritizes payments to senior note classes, offering additional protection.

Portfolio Characteristics

The portfolio’s Initial Aggregate Discounted Contract Balance (ADCB), as of November 30, 2024, stands at approximately $969.65 million. This valuation is derived from projected cash flows from equipment loans and leases, as well as the residual value of the related equipment. These cash flows are discounted using the respective contract’s implicit rate of return (IRR), with a weighted average IRR of 10.28%.

Other notable portfolio statistics include:

  • Total Contracts: 56
  • Number of Obligors: 33
  • Average Contract Balance: $17.32 million
  • Average Obligor Exposure: $29.38 million
  • Maximum Obligor Exposure: $132.11 million (13.62% of Initial ADCB)

The diversified portfolio reflects SCF’s strategy of minimizing risk by spreading exposure across industries and obligors. However, the maximum exposure to a single obligor highlights the importance of monitoring credit risk concentration.

Industry Coverage

The collateralized assets span a wide range of industries, including:

  • Marine and Rail: Essential for global supply chains and logistics.
  • Aircraft and Transportation: Key to regional and international mobility.
  • Medical Equipment: Critical for healthcare infrastructure.
  • Energy and Manufacturing: Foundational to industrial production and utilities.

This industry diversification ensures the portfolio’s resilience to sector-specific economic downturns.

Methodologies Applied

KBRA’s ratings for SCF 2025-1 are based on the following methodologies:

  1. ABS: Equipment Lease & Loan ABS Global Rating Methodology
  2. Structured Finance: Global Structured Finance Counterparty Methodology
  3. ESG Global Rating Methodology

These frameworks assess various factors, including credit risks, transaction structure, and environmental, social, and governance (ESG) considerations.

he full rating report provides detailed insights into the factors influencing the ratings, including:

  • Key credit considerations.
  • Sensitivity analyses exploring scenarios that could lead to rating upgrades or downgrades.
  • ESG factors where applicable.

Accessibility

Readers can access the following resources for more information:

Descriptions of rating categories and other relevant policies can be found on KBRA’s official website at www.kbra.com.

SCF 2025-1 reflects Stonebriar Commercial Finance’s continued innovation and leadership in the equipment finance sector. By leveraging essential-use assets and a diversified portfolio, the transaction aims to provide robust performance and credit quality. The preliminary ratings assigned by KBRA underscore the transaction’s structured resilience and alignment with market expectations.

For stakeholders, SCF 2025-1 serves as a testament to SCF’s ability to deliver high-quality investment opportunities backed by comprehensive risk management strategies. As the company continues to expand its footprint, its commitment to excellence in equipment ABS transactions remains evident.

Read more: KBRA Issues Preliminary Ratings for SCF Equipment Leasing 2025-1

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