Fitch Ratings expects to assign the following ratings and outlooks to the Ascentium Equipment Receivables 2016-2 Trust notes:

• $62 million class A-1 notes ‘F1+sf’
• $101 million class A-2 notes ‘AAAsf’; Outlook Stable
• $60 million class A-3 notes ‘AAAsf’; Outlook Stable
• $18 million class B notes ‘AA-sf’; Outlook Stable
• $15 million class C notes ‘A-sf’; Outlook Stable
• $7 million class D notes ‘BBBsf’; Outlook Stable
• $7 million class E notes ‘BBsf’; Outlook Stable.

Key Rating Drivers

Diversified Equipment Types: Equipment types are highly diversified within 2016-2, with the highest concentration being medical equipment, at 25.2%. The next two largest concentrations are titled equipment and display and storage, both at 14.7%. This diversification is consistent with Ascentium’s managed portfolio.

Weakening Asset Performance: The recent vintages within Ascentium’s managed portfolio are demonstrating a higher default pace relative to the majority of prior vintages. Additionally, on a non-substituted basis, more recent ABS transactions are also experiencing similar weakening trends. Fitch’s base case CGD proxy of 4.40% accounts for the higher default pace.

Aggressive Managed Portfolio Growth: Ascentium’s managed portfolio has experienced significant growth since inception in mid-2011, with annual originations increasing at a compound annual growth rate of 30%, as of year-end 2015. This has partially contributed to the aforementioned weaker performance and the volatile default performance related to certain new industries and/or equipment types.

Sufficient Credit Enhancement: All classes benefit from a cash reserve account and overcollateralization (OC). Total initial hard credit enhancement (CE) is 23.0%, 16.6%, 11.3%, 8.7% and 6.0% for the class A, B, C D, and E notes, respectively. The transaction includes a 100% turbo feature, which will allow for CE to build as the transaction amortizes.

Quality of Origination, Underwriting and Servicing: Ascentium has demonstrated adequate abilities as originator, underwriter and servicer as evidenced by historical delinquency and loss performance of securitized trusts and the managed portfolio.
Integrity of Legal Structure: The legal structure of the transaction should provide that a bankruptcy of Ascentium would not impair the timeliness of payments on the securities.