Dell Equipment Finance Trust 2021-1 — Moody’s assigns definitive ratings to Dell Equipment Finance Trust 2021-1 notes

Rating Action: Moody’s assigns definitive ratings to Dell Equipment Finance Trust 2021-1 notesGlobal Credit Research – 17 Mar 2021New York, March 17, 2021 — Moody’s Investors Service (Moody’s) has assigned definitive ratings to the notes issued by Dell Equipment Finance Trust 2021-1 (DEFT 2021-1). This is the first transaction of the year for Dell Financial Services L.L.C. (DFS), a wholly owned subsidiary of Dell Inc. (Ba1 LTR, stable). The notes are backed by a pool of small-ticket equipment loans and leases (the contracts) 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 2021-1Class A-1 Notes, Definitive Rating Assigned P-1 (sf)Class A-2 Notes, Definitive Rating Assigned Aaa (sf)Class A-3 Notes, Definitive Rating Assigned Aaa (sf)Class B Notes, Definitive Rating Assigned Aa2 (sf)Class C Notes, Definitive Rating Assigned A1 (sf)Class D Notes, Definitive Rating Assigned Baa2 (sf)RATINGS RATIONALEThe definitive ratings, the cumulative net loss expectation and the loss at a Aaa stress are based on the credit quality of the underlying securitized equipment contracts pool and its expected performance, the historical performance of DFS’ prior securitizations and its 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 cumulative net loss expectation for the DEFT 2021-1 collateral pool is 1.75% and the loss at a Aaa stress is 17.25% (inclusive of a residual value loss assumption of 1.25%).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 4,971 contracts, the top ten obligors (which are of generally strong credit profile) constitute 27.7% of the pool balance, 2) exposure to residual value risk, with the residual values of the leased equipment representing 3.7% of the pool and 3) the negative effect of the coronavirus on economic activity in the US.Additionally, in assigning a 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 benefit from 14.50%, 12.20%, 9.40% 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 7.00% of the outstanding pool balance with a floor of 4.50% of the initial pool balance. The notes may also benefit from excess spread.The coronavirus pandemic has had a significant impact on economic activity. Although global economies have shown a remarkable degree of resilience to date and are returning to growth, the uneven effects on individual businesses, sectors and regions will continue throughout 2021 and will endure as a challenge to the world’s economies well beyond the end of the year. While persistent virus fears remain the main risk for a recovery in demand, the economy will recover faster if vaccines and further fiscal and monetary policy responses bring forward a normalization of activity. As a result, there is a heightened degree of uncertainty around our forecasts. Our analysis has considered the effect on the performance of corporate assets from a gradual and unbalanced recovery in US economic activity.We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was « Moody’s Approach to Rating ABS Backed by Equipment Leases and Loans » published in December 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1253993. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Factors that would lead to an upgrade or downgrade of the ratings:UpMoody’s could upgrade the ratings on the notes if levels of credit protection are greater than necessary to protect investors against current expectations of loss. Moody’s then current expectations of loss may be better than its original expectations because of lower frequency of default by the underlying obligors or slower depreciation in the value of the equipment that secure the obligor’s promise of payment. As the primary drivers of performance, positive changes in the US macro economy and the performance of various sectors where the lessees operate could also affect the ratings.DownMoody’s could downgrade the notes if levels of credit protection are insufficient to protect investors against current expectations of portfolio losses. Losses could rise above Moody’s original expectations as a result of a higher number of obligor defaults or deterioration in the value of the equipment that secure the obligor’s promise of payment. Transaction performance also depends greatly on the US macro economy. Other reasons for worse-than-expected performance include poor servicing, error on the part of transaction parties, inadequate transaction governance and fraud. Additionally, Moody’s could downgrade the Class A-1 short term rating following a significant slowdown in principal collections that could result from, among other reasons, high delinquencies or payment deferrals or a servicer disruption that impacts obligor’s payments.Additional research including a pre-sale report for this transaction is available at www.moodys.com.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1270835.The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody’s estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.Moody’s quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody’s weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. 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Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Aron Bergman Vice President – Senior Analyst Structured Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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