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Rating Action:

Moody's assigned definitive ratings to Macquarie Equipment Funding Trust, Series 2011-A transaction

Global Credit Research - 09 Mar 2011

$284.5 million of asset-backed securities rated.

New York, March 09, 2011 -- Moody's has assigned the following definitive ratings to the Macquarie Equipment Funding Trust, Series 2011-A transaction, a securitization of equipment lease receivables sponsored by Macquarie Equipment Finance (MEF). The complete rating action is as follows:

Issuer: Macquarie Equipment Funding Trust, Series 2011-A

Cl. A-1, $132,000,000, rated P-1 (sf)

Cl. A-2, $84,000,000 rated Aaa (sf)

Cl. A-3, $68,534,000 rated Aaa (sf)

RATINGS RATIONALE

The ratings are based primarily on an analysis of the credit quality of the collateral, the historical performance of similar collateral serviced by MEF, including residual realization experience, the servicing ability of MEF and the performance guarantee of Macquarie Bank Limited (A1, P-1), and the level of credit enhancement available under the proposed capital structure. Collateral for the transaction, originated and serviced by MEF, consists mostly of true leases extended to business obligors and secured by various types of equipment including PC equipment (13.61%), medical equipment ( 11.95%) and disk storage equipment ( 11.17%). There is a significant amount of exposure to end-of-lease equipment value in this transaction since the collateral value advanced against includes a consideration for the residual value assigned to the equipment under the lease contract (book value of the residual accounts for 19.22% of initial securitized value by dollars and discounted present value of 16.89% of initial discounted present value of initial securitized value by dollars).

The analysis of this transaction is comprised of credit loss and residual value loss components. The credit loss component reflects Moody's loss expectation related to the capital structure's ability to insulate notes from defaulted contracts and the residual value loss component reflects Moody's loss expectation related to shortfall in residual realization relative to book value of the residual for non-defaulted contracts. Moody's assumption for residual loss is 0% at the expected level due to historically high realization rates for the issuer. Moody's applies a 50% haircut to residual realization at the Aaa level. The credit loss analysis is based primarily on an analysis of the collateral's historical performance -- including static pool performance for quarterly originations and managed portfolio performance -- adjusted to reflect differences between the economic conditions underlying the historical performance and our expectation of future economic conditions and the quality and concentration of the underlying obligors.

Moody's V Score. The V Score for this transaction is Medium, which is somewhat higher than the score assigned to the U.S. Large Issuer Equipment Lease and Loan ABS sector. This is primarily due to the increased complexity and market value sensitivity of the transaction due to the securitization of a significant amount of residuals and the fact that this is the sponsor's first securitization. The V Score indicates " Medium" uncertainty about critical assumptions. Moody's V Scores provide a relative assessment of the quality of available credit information and the potential variability around the various inputs to a rating determination. The V Score ranks transactions by the potential for significant rating changes owing to uncertainty around the assumptions due to data quality, historical performance, the level of disclosure, transaction complexity, the modeling and the transaction governance that underlie the ratings. V Scores apply to the entire transaction (rather than individual tranches).

Moody's Parameter Sensitivities. If the average assumed rating of the obligors not rated by Moody's used in determining the initial rating was set to B1, B2, Caa1 or Caa2, and the assumed recovery rate was 40%, the rating on the notes would be Aaa, Aaa, Aa3 and Baa1 respectively. If the average assumed rating of the obligors not rated by Moody's used in determining the initial rating was set to B1, B2, Caa1 or Caa2, and the assumed recovery rate was 30%, the rating on the notes would be Aaa, Aa1, A3 and Baa3 respectively. If the average assumed rating of the obligors not rated by Moody's used in determining the initial rating was set to B1, B2, Caa1 or Caa2, and the assumed recovery rate was 20%, the rating on the notes would be Aa1, Aa2, Baa2 and Ba2 respectively. If the average assumed rating of the obligors not rated by Moody's used in determining the initial rating was set to B1, B2, Caa1 or Caa2, and the assumed recovery rate was 10%, the rating on the notes would be Aa3, Aa3, Baa3 and Ba3 respectively. Parameter Sensitivities are not intended to measure how the rating of the security might migrate over time, rather they are designed to provide a quantitative calculation of how the initial rating might change if key input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged. Parameter Sensitivities only reflect the ratings impact of each scenario from a quantitative/model-indicated standpoint. Qualitative factors are also taken into consideration in the ratings process, so the actual ratings that would be assigned in each case could vary from the information presented in the Parameter Sensitivity analysis.

Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instrument in this transaction.

PRINCIPAL METHODOLOGY

The analysis of this transaction is comprised of credit loss and residual value loss components. The credit loss component reflects Moody's loss expectation related to the capital structure's ability to insulate notes from defaulted contracts and the residual value loss component reflects Moody's loss expectation related to shortfall in residual realization relative to book value of the residual for non-defaulted contracts.

A hybrid approach was used for the lease credit portion of this transaction. Qualitatively, the principal methodology used in rating traditional equipment lease transactions, "Moody's Approach to Rating Securities Backed Equipment Leases and Loans" dated as of April 2, 2007, was used. This publication is available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. The quantitative analysis normally used for equipment lease transactions was not used as the equipment lease pool in this transaction is not very granular and has a large portion of leases with investment grade corporates. In contrast to a traditional equipment lease pool, but similar to a fleet leasing pool, incidences of default are extremely low but individual obligor concentrations are high. As such the approach used for fleet leasing ABS, which is similar to what is used in rating CLO transactions, was used in analyzing this transaction. The technique is called binomial expansion technique (BET) and is described in the reports "Rating Cash Flow Transactions Backed By Corporate Debt 1995 Update", April 7,1995 and "The Binomial Expansion Method Applied to CBO/CLO Analysis", December 13, 1996, published by Moody's Investors Service.

Under the BET method, an enhanced approach utilizing Moody's CDOROM model was utilized. The CDO ROM model uses Monte Carlo simulation to generate the loss distribution based on actual obligor concentrations and ratings, which is then applied to the same cashflow model as in the traditional BET method, to determine the ratings on the bonds. A detailed description of the model is provided in the Appendix to the CDOROMMv2.5 User Guide, dated February 3, 2009, available at www.moodys.com. The CDOROM model does not rely on a proxy pool. Instead, it directly models the loss distribution of the pool using Monte Carlo simulations based on the probability of default of each obligor, which is represented by its rating, and actual sizes of the obligors in the pool, their industry classifications, and the correlation among the obligors and industries. Specifically, the CDO ROM is used to generate probability of default distribution. Then the probability of default distribution generated by the CDO ROM model is fed into the BET cash-flow model as input to replace the probability of default distribution based on the BET method. The resulting loss distribution based is then used to generate expected losses on the bonds to determine their appropriate ratings at given credit enhancement levels.

Other methodologies and factors that may have been considered in the process of rating this issue can also be found in the Credit Policy & Methodologies directory.

Additional research including a pre-sale report for this transaction is available at www.moodys.com. The special reports, "Updated Report on V Scores and Parameter Sensitivities for Structured Finance Securities" and "V Scores and Parameter Sensitivities in the U.S. Equipment Lease and Loan ABS Sector" are also available on moodys.com.

In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Michael Labuskes
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael McDermitt
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigned definitive ratings to Macquarie Equipment Funding Trust, Series 2011-A transaction
No Related Data.
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