Research: Rating Action: Moody’s Assigns Final Ratings to Dell Equipment Finance Trust Ratings 2022-2

New York, July 20, 2022 — Moody’s Investors Service (“Moody’s”) has assigned final ratings to notes issued by Dell Equipment Finance Trust 2022-2 (DEFT 2022-2). This is the second transaction of the year for Dell Financial Services LLC (DFS), a wholly owned subsidiary of Dell Inc. (Baa3, stable). The Notes are backed by a pool of low-cost equipment loans and leases (the Contracts) primarily issued by DFS, which is also the manager and administrator of the transaction.

The full rating actions are as follows:

Issuer: Dell Equipment Finance Trust 2022-2

Class A-1 notes, final rating assigned P-1 (sf)

Class A-2 notes, final rating assigned Aaa (sf)

Class A-3 notes, final rating assigned Aaa (sf)

Class B Notes, Final Assigned Rating Aa1 (sf)

Class C Notes, Final Assigned Rating Aa3 (sf)

Class D Tickets, Final Rating Assigned A3 (sf)

RATINGS RATIONALE

The Class D tickets’ final rating, A3 (sf), is one notch higher than its provisional rating. The higher rating of the Class D Notes is due to the lower weighted average coupon of the Notes compared to the expectations provided by the issuer at the time of the assignment of the provisional ratings. The decrease resulted in an increase in excess margin, thereby increasing the total levels of credit enhancement.

Moody’s final ratings and joint loss distribution are based on the credit quality of the pool of underlying equipment contracts securitized and its expected performance, the historical performance of DFS’s prior securitizations and its managed portfolio of similar collateral, DFS’s background, experience and expertise. as originator and managing agent, the soundness of the transaction structure, including the sequential payment structure and the amount of credit enhancement supporting the Notes, and the legal aspects of the transaction.

Moody’s joint loss distribution constructed for the DEFT 2022-2 collateral pool exhibits the characteristics of a median expected loss of approximately 0.8% and a loss at Aaa stress of approximately 14.5%. To derive the joint loss distribution, Moody’s combined two independent loss distributions for the concentrated subpool and the granular subpool.

The key credit strengths of the transaction include 1) the essential use nature of the underlying equipment, 2) the high credit quality of obligors, with 87% of the initial pool balance comprised of large institutions or public institutions, two segments that have historically experienced low losses in DFS’s managed portfolio, and 3) deal structure. The credit challenges of the transaction include 1) the high concentration of obligors: while the pool consists of 7,283 contracts, the top ten obligors (who typically have strong credit profiles) constitute 26.5% of the pool balance and 2) exposure to residual value risk, with residual values ​​of leased equipment representing 4.4% of the pool.

Additionally, in assigning the short-term rating to the A-1 grade notes, Moody’s has considered the cash flows we expect the underlying contracts will generate during the collection periods prior to the final legal maturity date. Class A-1 tickets.

At closing, the Class A, Class B, Class C and Class D Notes benefit from 12.00%, 9.50%, 6.75% and 4.75% firm credit enhancement, respectively. The firm credit enhancement for the Notes consists of any available subordination of the Junior Notes, a fully funded non-decreasing reserve account of 1.00% and an overcollateralization of 3.75% which will achieve a target of 5.75% of the balance of the current pool with a floor of 3.75% of the initial pool balance. The Notes will also benefit from excess spread, estimated to be approximately 2.5% assuming the initial yield of the underlying assets and trust expenses and interest obligations on the Notes.

MAIN METHODOLOGY

The main methodology used in these ratings is “Equipment Lease and Loan Securitizations Methodology” published in July 2022 and available on https://ratings.moodys.com/api/rmc-documents/390483. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of ratings:

At the top

Moody’s may raise the ratings of the Notes if levels of credit protection are greater than necessary to protect investors against current expectations of loss. Moody’s current loss expectation may then be better than its initial expectation due to a lower frequency of default by underlying obligors or a slower depreciation in the value of the equipment that secures the promise. payment from the debtor. As key performance drivers, positive changes in the US macroeconomics and the performance of various sectors in which tenants operate could also affect ratings.

Down

Moody’s could downgrade the ratings if levels of credit protection are insufficient to protect investors against current expectations of portfolio losses. Losses could exceed Moody’s original expectations due to a higher number of debtor defaults or deterioration in the value of the equipment that secures the debtor’s promise to pay. Trading performance is also highly dependent on the US macro economy. Other reasons for below-expected performance include poor service, error on the part of the parties to the transaction, inadequate transaction governance, and fraud. In addition, Moody’s may downgrade the short-term A-1 rating following a significant slowdown in principal collections which could result from, among other things, high late payments or payment deferrals or an interruption of the service affecting the debtor’s payments.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

Further information on representations, warranties and enforcement mechanisms available to investors can be found at https://ratings.moodys.com/documents/PBS_1336894.

The analysis includes an evaluation of collateral characteristics and performance to determine expected collateral loss or a range of collateral losses or expected cash flows for rated instruments. In a second step, Moody’s estimates collateral losses or expected cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural characteristics, to derive the loss expected for each scored instrument.

Moody’s quantitative analysis involves an evaluation of scenarios that focus on factors contributing to rating sensitivity and consider the likelihood of material collateral losses or impaired cash flows. Moody’s weights the impact on rated instruments based on its assumptions of the likelihood of events in such scenarios occurring.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following information, if applicable to the jurisdiction: Ancillary services, Information to be provided to the rated entity, Information to be provided by the rated entity.

The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Ekrem Cinar
Associate Senior Analyst
Structured Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Aron Bergman
VP – Senior Credit Officer
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

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