$284.5 million of asset-backed securities rated.
New York, February 14, 2011 -- Moody's has assigned provisional ratings to the Macquarie Equipment Funding
Trust, Series 2011-A transaction, the inaugural securitization
of equipment leases sponsored by Macquarie Equipment Finance (MEF).
The complete rating action is as follows:
Issuer: Macquarie Equipment Funding Trust, Series 2011-A
Cl. A-1, Assigned (P)P-1 (sf)
Cl. A-2, Assigned (P)Aaa (sf)
Cl. A-3, Assigned (P)Aaa (sf)
RATINGS RATIONALE
The ratings are based primarily on an analysis of the credit quality of
the collateral, the collateral's historical performance 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 a largely
coporate obligor base (43% by dollar amount rated by Moody's) 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).
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 in line with the score assigned to the U.S. Large
Issuer Equipment Lease and Loan ABS sector. 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. As described under principal methodology,
in rating the transaction we assumed that the 57% of the obligor
base not rated by Moody's had default risk consistent with an assumed
B2 rating, and applied an assumed recovery rate for defautled leases
of 40%. 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.
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 assigns provisional ratings to inaugural Macquarie Equipment Funding equipment lease ABS
