A finance specialist in aircraft and railcar equipment leasing is prepping a $311.43 million securitization of leases and loans focused primarily in the oil and gas sectors.
Stonebriar Commercial Finance is sponsoring a four-note, asset-backed transaction that is supported by receivables from contracts it services with an aggregate outstanding balance of nearly $340 million.
SCF Equipment Leasing 2017-1, the company’s second securitization, includes a $254.9 million Class A tranche of bonds that have provisional ratings of ‘A1’ by Moody’s Investors Service and ‘A+’ by Kroll Bond Rating Agency.
The Class A notes are supported by 26.4% of initial hard credit enhancement, consisting of 8.25% overcollateralization, 16% subordination, a 1.5% reserve fund and an estimated excess spread of 2.01%.
The target OC of 10.25% is lower than that of SCF’s debut 2016-1 securitization last June that featured an 11.9% target OC, which was part of an overall 31.15% CE level for that deal. The $254.4 million SCF Equipment Trust 2016-1 was an ‘A (high)’ senior note structured finance rating by DBRS.
According to Moody’s, the loans and leases in the collateral pool are mid- and large-ticket equipment items that are predominantly railcar (30.8%) and corporate aircraft (25.8%) leases.
That represents a major shift in collateral from the company’s prior deal that focused on corporate aircraft (23.2%), water vessels (22.9%) and manufacturing & assembly equipment (16.8%). The previous deal also included helicopters and various oil and gas equipment that aren’t included in the latest transaction.
About 25% of the obligors in SFC 2017-1 are in oil and gas – another shift from 2016-1 in which the lessee concentration was led by air transport at 32.9%. Over 75% of the contracts are leases.
The contracts in the pool have average remaining terms of 65.1 months, with an average balance of $5.3 million. Nearly all of the obligors in the new pool are comprised of firms carrying speculative-grade corporate ratings.
The new pool has a top-heavy concentration (the top five of the 30 obligors in the pool make up 32.5% of the collateral portfolio balance) and has 23% of the pool tied to collateral residual values, factors that give Moody’s pause about the “performance volatility” of the portfolio should even a single contract holder default.
But the firms renting from Stonebriar are inked to higher-priced contracts due to their poor credit quality, and are inked to “relatively onerous return conditions” on the equipment that “incentivize” borrowers and lessees to renew leases or ultimately purchase the collateral crucial to their operations.
“The obligors’ weak financial strength is mitigated by the high appraised value of the collateral compared to the contract amount,” stated Moody’s, which rates only three companies in the pool as investment grade.
The securitization is based on projected cash flows discounted at a blended rate of 7.57%, according to KBRA.
Stonebriar has originated over $1.2 billion in receivables since being founded in 2015. Its existing portfolio consists of 169 loans and leases with $932.4 million in principal outstanding, according to Moody’s. The company reports no delinquencies or defaults on any of the existing contracts in the managed portfolio, but SFC experienced two defaults in 2016-1, Moody’s reported.
Eldridge Equipment Finance is the majority owner of Stonebriar, which gets funding from an Eldridge affiliate, life insurance co. Security Benefit Corp.
Stonebriar has a commercial realty affiliate which last November issued a $351.7 million commercial mortgage-backed securitization.