KBRA Assigns Preliminary Ratings to OWN Equipment Fund I LLC
In an exciting development for the asset-backed securities market, KBRA has recently assigned preliminary ratings to two classes of notes issued by OWN Equipment Fund I LLC. This noteworthy transaction into the equipment rental sector is expected to have a significant impact on how investors view the overall market for equipment rentals.
The Role of EquipmentShare.com
This transaction signifies EquipmentShare.com Inc.'s involvement as both Equipment Manager and Co-Sponsor for the second equipment rental ABS transaction. EquipmentShare has garnered a reputation for providing high-quality equipment rental services and technological solutions that enhance operational efficiency. The partnership with OWN marks a new chapter in their ongoing commitment to excellence in this sector.
Details of the Transaction
The transaction involves support from an amortizing pool of collateral. As of the latest reporting date, this pool consists of over 10,000 pieces of equipment, totaling approximately $506.4 million in Aggregate Portfolio Value (APV). The assets include various types of equipment, predominantly used in construction, sourced from leading manufacturers. Such diversification is vital for the stability and value of the portfolio, minimizing risks associated with reliance on a single manufacturer. In fact, ten key manufacturers represent more than 92% of the APV, further underscoring the transaction's strength.
Management and Oversight
The structure of the transaction sees the Managing Investor operating a special purpose entity that leases the equipment to EquipmentShare through a management agreement. This arrangement ensures that the equipment is effectively utilized, rented out to end users. Typically, these rentals span around 28 days but can be extended significantly if the users choose to renew their rentals. The equipment rental model displays flexibility for clients, who can customize usage according to their needs.
Implications of a Manager Termination Event
It's important to consider what happens in the case of a Manager Termination Event. If this situation arises, EquipmentShare will cease to renew rentals to users, which positions the Issuer to reclaim equipment after the rental period concludes. This provision enhances security for noteholders, offering them reassurance about the ongoing management of the assets.
Financial Overview of EquipmentShare
Founded in 2015, EquipmentShare has quickly become one of the dominant players in the U.S. equipment rental market. With 270 full-service branches across multiple states, the company manages an impressive $6.2 billion in original equipment cost. Furthermore, approximately $4.0 billion of this figure is tied to their unique OWN Program, which emphasizes the strength of their business model.
Security and Liquidation Process
Ownership of the equipment collateralized by the notes underscores the transaction's security. EquipmentShare not only manages the Issuer’s assets but also engages in a leasing agreement directly with them. According to this agreement, the payments made by EquipmentShare serve as the primary funding source for noteholder payments. Rouse Appraisals LLC plays a crucial role as the Valuation Agent, conducting monthly valuations of the equipment within the pool to ensure its ongoing viability as collateral.
Understanding Liquidation Events
Should the lease payments fall short or certain stipulated events occur, a Liquidation Event will take place. In this scenario, the equipment would be liquidated, utilizing the proceeds to settle obligations owed to noteholders. Ritchie Bros. Auctioneers (America) Inc. has been designated as the liquidation agent, responsible for overseeing this process and ensuring compliance with the terms of the transaction.
About KBRA
Kroll Bond Rating Agency, LLC (KBRA) stands as a prominent credit rating agency registered with the U.S. Securities and Exchange Commission. Its broad recognition includes a designation as a rating organization in various jurisdictions, catering to the increasing demand for transparency and reliability in the rating process. KBRA’s role in this transaction is representative of its commitment to providing insightful evaluations of credit risk across different asset categories.
Frequently Asked Questions
What are the ratings assigned by KBRA?
KBRA has assigned preliminary ratings to two classes of notes issued by OWN Equipment Fund I LLC.
Who are the co-sponsors for this transaction?
EquipmentShare.com Inc. is the Equipment Manager and co-sponsor, alongside OWN Tactical Equipment I LLC as the other co-sponsor.
What is the portfolio value of the equipment?
The Aggregate Portfolio Value (APV) is approximately $506.4 million, comprising various types of construction equipment.
What happens in the event of a Manager Termination Event?
In such an event, EquipmentShare will not renew rentals, allowing the Issuer to reclaim the equipment at the rental period's conclusion.
What role does KBRA play in the market?
KBRA offers credit ratings and insights, enhancing transparency and building investor confidence in diverse financial transactions.
