Document Title spglobal.com/ratings This report does not constitute a rating action Oct. 5, 2021 1 ANALYTICAL CONTACTS Ildiko Szilank New York [email protected]Jay Srivats San Francisco [email protected]DATA VISUALIZATION CONTACT Deegant Pandya New York [email protected]Bushra Dawawala Mumbai [email protected]RESEARCH CONTACTS Tom Schopflocher New York [email protected]James Manzi, CFA Washington D.C. [email protected]RESEARCH SUPPORT CONTACT Saryu Kamra Pune [email protected]Ishan Shankar Pune [email protected]INVESTOR CONTACT Kieran McShane New York [email protected]MEDIA CONTACT Obrien, Orla [email protected]Oct. 5, 2021 Data as of Sept. 15, 2021. FY–full-year. Source: S&P Global Ratings. S&P Global Ratings’ U.S. non-traditional ABS team assigns and monitors ratings on securities collateralized by pools of a diverse range of assets, including aircraft, marine shipping containers, railcars, triple-net and data center leases, solar loans, master settlement tobacco payments, insurance premiums, franchise royalty payments, timeshare loans, and small business loans, among others. Key Takeaways − Year to date (YTD), S&P Global Ratings rated 53 new non-traditional ABS transactions, which is over 145% and 140% of the issuance volume in the first three quarters of 2020 and 2019, respectively. − We issued ratings on a solar loan-backed ABS transaction, GoodLeap Sustainable Home Solutions Trust Series 2021-4; a new data center program, Aligned Data Centers Issuer LLC; and a new triple-net program, CMFT Net Lease Master Issuer LLC. − YTD, S&P Global Ratings took rating actions on 57 transactions. We affirmed ratings on 39 of these, lowered ratings on three, and raised ratings on 15. We also completed annual reviews on 245 transactions. − Environmental, social, and governance (ESG)-related credit rating actions affected two aircraft securitizations, Harbour Aircraft Investments and Merlin Aviation Holdings.
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spglobal.com/ratings This report does not constitute a rating action Oct. 5, 2021 1
Data as of Sept. 15, 2021. FY–full-year. Source: S&P Global Ratings.
S&P Global Ratings’ U.S. non-traditional ABS team assigns and monitors ratings on securities collateralized by
pools of a diverse range of assets, including aircraft, marine shipping containers, railcars, triple-net and data
center leases, solar loans, master settlement tobacco payments, insurance premiums, franchise royalty
payments, timeshare loans, and small business loans, among others.
Key Takeaways − Year to date (YTD), S&P Global Ratings rated 53 new non-traditional ABS transactions, which
is over 145% and 140% of the issuance volume in the first three quarters of 2020 and 2019, respectively.
− We issued ratings on a solar loan-backed ABS transaction, GoodLeap Sustainable Home Solutions Trust Series 2021-4; a new data center program, Aligned Data Centers Issuer LLC; and a new triple-net program, CMFT Net Lease Master Issuer LLC.
− YTD, S&P Global Ratings took rating actions on 57 transactions. We affirmed ratings on 39 of these, lowered ratings on three, and raised ratings on 15. We also completed annual reviews on 245 transactions.
− Environmental, social, and governance (ESG)-related credit rating actions affected two aircraft securitizations, Harbour Aircraft Investments and Merlin Aviation Holdings.
Principal Interests SF Insights: Non-Traditional ABS
spglobal.com/ratings Oct. 5, 2021 2
RELATED RESEARCH
Credit FAQ: Ratings Considerations For New Aircraft ABS Securitizations, March 16, 2021 Recent Developments In The Tobacco Securitization Market, May 19, 2021
Criteria | Structured Finance | ABS: Advance Notice Of Proposed Criteria Change: North American Single-Tenant Real Estate Triple-Net Lease-Backed Securities Sept. 7, 2021
PRESALES
Sabey Data Center Issuer LLC, July 1, 2021 CMFT Net Lease Master Issuer LLC, July 15, 2021
ServiceMaster Funding LLC, July 23, 2021 Aligned Data Centers Issuer LLC, Aug. 5, 2021 Goodleap Sustainable Home Solutions Trust 2021-4, Aug. 5, 2021
Highlights Of Q3 2021U.S. Non-Traditional ABS Rating Activity In the third quarter of 2021, S&P Global Ratings’ Non-Traditional ABS group rated 36 new-issue transactions, performed annual surveillance reviews on 245 transactions across 10 sectors, and took actions on 57 transactions.
First new solar loan-backed ABS ratings in six years
We rated notes from a solar loan-backed ABS transaction for the first time since 2015. GoodLeap Sustainable Home Solutions Trust Series 2021-4 is collateralized by loans backed by residential solar energy and storage systems, where the systems are owned by the residential obligors. In contrast, four of the five prior-rated solar securitizations, all sponsored by the former SolarCity (now Tesla Energy), are backed by leases and power purchase agreements (PPAs) for third-party-owned systems (TPO), where customer payments are a function of the amount of electricity produced.
New data center issuer
We rated Aligned Data Centers Issuer LLC's inaugural data center revenue notes series 2021-1, collateralized by wholesale data centers in Texas, Arizona, Utah, and Virginia and their tenant leases. The vast majority of Aligned's data centers are leased by hyperscale tenants, which typically require 500 kilowatts (kW) or more of capacity to operate their computing equipment and networks. These bonds were designated as green bonds based on the Capital Markets Association's classification of market principles.
New triple-net lease issuer
We rated CMFT Net Lease Master Issuer LLC’s first ABS issuance (series 2021-1), sponsored by affiliates of CIM Group LLC and backed by 119 commercial retail and industrial real estate properties and related leases. The properties are considered operationally essential to the tenants to generate revenue, and about 45% of the collateral pool (by appraisal value) has investment-grade tenants.
Principal Interests SF Insights: Non-Traditional ABS
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New Issuance Continues Post-Pandemic Momentum While Ratings Remain Relatively Stable YTD, S&P Global Ratings rated 53 new non-traditional ABS transactions, which is over 145% and 140% of the issuance volume in the first three quarters of 2020 and 2019, respectively. We believe that increased interest in non-traditional ABS reflect higher yield combined with generally steady performance and resilience during COVID-19 for most sectors. As of Sept. 15, 2021, over 88% of our portfolio is of investment-grade quality (rated 'BBB-' or higher) by number of bonds.
YTD 2021 New Issuance Bonds By Rating Category
Data as of Sept. 15, 2021. Source: S&P Global Ratings.
Principal Interests SF Insights: Non-Traditional ABS
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YTD, S&P Global Ratings took rating actions on 57 transactions from nine asset classes. We affirmed ratings on 39 of these, lowered ratings on three, and raised ratings on 15. We also completed annual reviews on 245 transactions.
Surveillance Rating Actions: Upgrades, Downgrades, And Affirmations
Data as of Sept 15, 2021. The number of triangles indicates the number of notches the ratings were lowered or raised. Source: S&P Global Ratings.
Downgrades
Affirmations
Upgrades
Total Bonds
Aircraft Leasing 3 2 7 12
Corporate Securitization
29 2 31
Insurance Related 21 21
Leveraged Fund 2 1 3
Railcar Leasing 4 4
Small Business Loans
1 1
Solar Securitization 4 4
Tobacco Settlement 4 195 13 1 2 215
Triple-Net Lease 4 4
Total 3 2 4 267 16 1 2 295
Annual Review Update
As of Sept. 15, 2021, we completed annual reviews on 245 transactions. In an annual review, S&P Global Ratings reviews current credit ratings against the latest issuer/issue performance data, as well as any recent market developments. Annual reviews may, depending on their outcome, result in a referral of a credit rating for a committee review, which may result in a credit rating action.
RATINGS ACTION PRESS RELEASES
TGIF Funding LLC Series 2017-1 Ratings Unchanged By Rapid Amortization Waiver, June 25, 2021
CMFT Net Lease Master Issuer LLC Series 2021-1 Notes Assigned Ratings, Jul 29, 2021
Two SolarCity LMC Series III LLC Series 2014-2 Ratings Affirmed, Aug. 18, 2021
Merlin Aviation Holdings DAC Class A, B, And C Notes Lowered; Off CreditWatch, Sept. 3, 2021 GoodLeap Sustainable Home Solutions Trust 2021-4 Notes Assigned Ratings, Sept 8, 2021
Principal Interests SF Insights: Non-Traditional ABS
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Sector Highlights
Triple-net lease
S&P Global Ratings has begun a review of our criteria for rating North American single-tenant triple-net lease-backed transactions, as announced in "Advance Notice Of Proposed Criteria Change: North American Single-Tenant Real Estate Triple-Net Lease-Backed Securities," Sept. 7, 2021. The review will consider the evolution of triple-net securitizations, such as in asset type and transaction structure, since we published the criteria in 2016. It will also incorporate observations of asset performance since then. Based on our review, we may refine our assumptions and analytics.
New issuance In addition to CIM Real Estate Finance Operating Partnership L.P. (S&P Global Ratings' first rated triple-net securitization for this issuer), we rated five other triple-net ABS new issues out of existing trusts in 2021 YTD. While transactions with exposure to certain business segments, including full-service dining, child care, and fitness centers, exhibited lower transaction debt-service coverage multiples due to stress in early 2020 amid mandated closures and social distancing, performance has since rebounded to pre-March 2020 levels for most transactions.
Surveillance YTD, we affirmed four ratings on notes from a single transaction with a current balance of $1.93 billion, representing 5% of our rated book in this sector.
Data centers
New Issuance In addition to the inaugural Aligned 2021-1 data center securitization, we assigned ratings to subsequent series of data center-backed bonds from Sabey, Compass, and Stack Data Center Issuers YTD. The wholesale data center industry has generally seen strong growth in customer demand since early 2020 as increased demand for remote-work capabilities, driven by the pandemic, added to existing growth drivers, including continued corporate migration of data center infrastructure to public cloud service providers.
Aircraft
New Issuance We rated our first aircraft lease securitizations since the onset of the COVID-19 pandemic: MAPS 2021-1 Trust in June 2021 and Castlelake Aircraft Structures Trust 2017-1R in August 2021. Both transactions consist of a number of aircrafts that are subject to power by the hour (PBH) lease agreements. PBH agreements became increasingly common during the height of COVID-19 when airlines struggled to make lease payments due to the sharp reduction in capacity. These agreements enable lessors to provide temporary rent relief to airlines and avoid the cost of repossession. We have seen arrangements with a guaranteed minimum amount due for a period and then convert to a fixed amount with no required minimum amounts. In our analysis, we give credit to minimums and do not consider projected PBH payments. We continue to apply additional stresses to these transactions, including increased downtime after the unprecedented decline in air travel.
Principal Interests SF Insights: Non-Traditional ABS
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Surveillance YTD we reviewed six bonds from two deals, with a current balance of $418 million, representing 6% of our rated book in this sector. We lowered five ratings on Harbour Aircraft Investments Ltd. and Merlin Aviation Holdings DAC, and removed them from CreditWatch with negative implications. The downgrades reflect the advanced age of the aircraft and the continued deterioration in cash flows during the pandemic, which has resulted in minimal payment of principal on the notes.
Container and railcar securitization
New Issuance In Q3 2021, we rated one new railcar ABS transaction and one new container ABS transaction. Utilization and lease rates remain at relatively high levels, especially in the container space, and most of the outstanding ABS transactions continue to pay down according to schedule. Surveillance YTD, we reviewed ratings on four bonds from one deal, with a current balance of $428 million, representing 10% of our rated book in the railcar sector.
Whole business ABS (corporate securitization)
New Issuance The corporate securitization new-issuance market has been active in 2021, with S&P Global Ratings assigning ratings on notes issued from eight existing programs YTD. In contrast, we rated seven new issuances through all of 2020. We observed that most of the domestic quick service restaurants recovered quickly from the temporary closures resulting from the pandemic. Many of the other S&P Global Ratings-rated issuers, primarily service providers, also proved resilient, as they offer essential services such as car maintenance and residential/commercial cleaning. We continue to closely monitor concepts with slower recovery, such as gyms, dine-in restaurants, and international stores.
Surveillance YTD, we reviewed 31 bonds from 16 deals, with a current balance of $13.1 billion, representing 38% of our rated book in this sector. We affirmed our ratings on 29 bonds and upgraded ratings on two, on the basis of the respective transactions’ brand strength, cash flow coverage, and liquidity, among other factors.
Solar ABS
New Issuance We rated a new solar loan deal, GoodLeap Sustainable Home Solutions Trust Series 2021-4, in Q3.
Surveillance YTD, we reviewed four bonds from two deals, with a current balance of $189 million, representing 40% of our rated book in the sector. In 2021, we observed an increase in cumulative customer defaults on two solar assets-backed bonds. While this brought the transaction's DSCR down slightly, the cumulative defaults remain well below our projections for the transaction at the 'BBB+ (sf)' and 'BB (sf)' levels and, therefore, we affirmed those ratings.
Principal Interests SF Insights: Non-Traditional ABS
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Insurance Premium ABS
Surveillance YTD, we reviewed 21 bonds from 10 deals, with a current balance of $3.5 billion, representing 91% of our rated book in the sector. We affirmed 21 ratings from PFS Financing Corp. backed by insurance premium finance loans. The affirmations were based on our view of the transactions' ability to pass the current rating level stresses given the new series 2021-B issuance out of the same master trust.
ESG In Non-Traditional ABS Through 2021, S&P Global Ratings has taken ESG-based credit rating actions related to health and safety factors in the aviation sector. The rating actions reflect the prolonged negative impact of the COVID-19 pandemic on world travel and the resulting stress on airlines' liquidity and ability to make timely lease payments. There are two notable actions that involved significant ESG analysis.
In February 2021, we placed the ratings on the Harbour Aircraft Investments aircraft securitization series A, B, and C bonds on CreditWatch with negative implications. The CreditWatch placement reflected, among other things, the negative impact of the pandemic on world travel, along with a continued steep decline in rental collections. We subsequently lowered the ratings of class A and B and affirmed the rating of class C in May 2021. The downgrades reflected insufficient credit enhancement at the respective rating levels.
In September 2021, we lowered our ratings on Merlin Aviation Holdings class A, B, and C notes and removed the ratings from CreditWatch with negative implications. The rating actions reflect the notes' insufficient credit enhancement at their respective previous rating levels based on our assumptions and sensitivity analysis, among other factors.