DBRS Assigns Provisional Ratings to the Notes Issued by Engs Commercial Finance Trust 2018-1

DBRS, Inc. (DBRS) assigned provisional ratings to the following classes of notes to be issued by Engs Commercial Finance Trust 2018-1 (the Issuer):

-- $119,960,000 Class A-1 Notes at AAA (sf)
-- $65,434,000 Class A-2 Notes at AAA (sf)
-- $14,172,000 Class B Notes at AA (sf)
-- $9,874,000 Class C Notes at A (sf)
-- $10,152,000 Class D Notes at BBB (sf)
-- $5,762,000 Class E Notes at BB (sf)

The provisional ratings are based on a review by DBRS of the following analytical considerations:
-- Form and sufficiency of available credit enhancement and the ability to withstand the expected losses under various stressed cash flow scenarios.
-- While the structure allows for an approximately four-month prefunding period, during which time the acquisition by the Issuer of new loans into the collateral pool will be permitted, the proposed concentration limits will mitigate the risk of material migration in the collateral pool’s composition or risk profile.
-- The assets in the pool primarily consist of new and used transportation equipment, including trucks and trailers, security interest in the financed equipment and all related proceeds. After the prefunding period, no less than 72.50% of the outstanding pool balance will be represented by new equipment, and not more than 62.50% will be loans related to trucks.
-- DBRS deems Engs Commercial Finance Co. (Engs) to be an acceptable originator and servicer of equipment-backed leases and loans. In addition, U.S. Bank National Association, which is an experienced servicer of equipment loan-backed securitizations, will be the backup servicer for the transaction.
-- The legal structure and presence of legal opinions that address the true sale of the assets to the Issuer, the non-consolidation of the special-purpose vehicle with Engs, that the trustee has a valid first-priority security interest in the assets and the consistency with the DBRS “Legal Criteria for U.S. Structured Finance.”

Engs is a commercial truck and trailer financing company headquartered in Itasca, Illinois. Its predecessor, Engs Motor Truck Co., started financing trucks in 1952. In 2012, Engs and its $103 million portfolio were acquired by the current senior executive team and a private equity investor. Since then, the current management team has grown the originations and expanded the company’s national footprint. This transaction is the third term securitization sponsored by Engs. The inaugural asset-backed securities (ABS) sponsored by Engs were issued in August 2015, followed by the second ABS executed by Engs in November 2016.

The rating on the Class A-1 Notes reflects 49.9% of initial hard credit enhancement (as a percentage of collateral balance) provided by the subordinated notes in the pool (45.4%), the Reserve Account (1.50%) and overcollateralization (OC) (3.00%). The rating on the Class A-2 Notes reflects 21.7% of initial hard credit enhancement provided by the subordinated notes in the pool (17.2%), the Reserve Account and OC. The ratings on the Class B, Class C, Class D and Class E Notes reflect 15.6%, 11.4%, 7.0% and 4.5% of initial hard credit enhancement, respectively. The transaction is expected to benefit from the available excess spread estimated at approximately 4.2% at closing.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating U.S. Equipment Lease and Loan Securitizations, which can be found on dbrs.com under Methodologies.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.