Moody’s Assigns Provisional Ratings to Dell Equipment Finance Trust 2021-2 Notes

Moody’s Investors Service assigned provisional ratings to the notes to be issued by Dell Equipment Finance Trust 2021-2 (DEFT 2021-2).

This is the second transaction of the year for Dell Financial Services, a wholly owned subsidiary of Dell. The notes will be backed by a pool of small-ticket equipment loans and leases primarily originated by DFS, who is also the servicer and administrator for the transaction.

The complete rating actions are as follows:

Issuer: Dell Equipment Finance Trust 2021-2

·         Class A-1 Notes, Assigned (P)P-1 (sf)

·         Class A-2 Notes, Assigned (P)Aaa (sf)

·         Class A-3 Notes, Assigned (P)Aaa (sf)

·         Class B Notes, Assigned (P)Aa1 (sf)

·         Class C Notes, Assigned (P)Aa3 (sf)

·         Class D Notes, Assigned (P)Baa1 (sf)

The provisional ratings and Moody’s joint loss distribution are based on the credit quality of the underlying equipment contracts pool to be securitized and its expected performance, the historical performance of DFS’ prior securitizations and it’s managed portfolio of similar collateral, DFS’ track record, experience and expertise as originator and servicer, the strength of the transaction structure including the sequential pay structure and amount of credit enhancement supporting the notes, and the legal aspects of the transaction.

Moody’s joint loss distribution constructed for the DEFT 2021-2 collateral pool has characteristics of a median expected loss of approximately 0.80% and loss at a Aaa stress of about 15%.

To derive the joint loss distribution, Moody’s combined two independent loss distributions for the concentrated sub-pool and the granular sub-pool. As of the cutoff date there are no obligors without an individual assessment for the DEFT 2021-2 concentrated sub-pool.

Key credit strengths of the transaction include 1) the essential use nature of the underlying equipment, 2) the high credit quality of the obligors, with 89% of the initial pool balance consisting of large or public institutions, both segments that have historically incurred very low losses in DFS’ managed portfolio, and 3) the transaction structure. Credit challenges of the transaction include 1) the high obligor concentration: while the pool consists of 5,410 contracts, the top ten obligors (which are of generally strong credit profile) constitute 29.4% of the pool balance and 2) exposure to residual value risk, with the residual values of the leased equipment representing 3.1% of the pool.

Additionally, in assigning a (P)P-1 (sf) rating to the Class A-1 notes, Moody’s considered the cash flows that we expect the underlying receivables to generate during the collection periods prior to the Class A-1 notes’ legal final maturity date.

At closing the Class A, Class B, Class C, and Class D notes will benefit from 14.50%, 11.75%, 8.50% and 5.50% of hard credit enhancement, respectively. Hard credit enhancement for the notes consists of any available subordination of junior notes, a 1.00% fully funded, non-declining reserve account, and overcollateralization of 4.50% which will build to a target of 6.50% of the outstanding pool balance with a floor of 4.50% of the initial pool balance. The notes will also benefit from excess spread, initially estimated at around 1.9% assuming the initial yield on the underlying assets and trust expenses and note interest obligations.

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