KBRA assigns preliminary ratings to four classes of notes issued by CP EF Asset Securitization II, LLC, Series 2023-1 (CPEF 2023-1), an equipment ABS transaction.

CPEF 2023-1 represents Channel Partners Capital, LLC’s (CPC or the Company) fifth ABS transaction, but its second ABS transaction secured by equipment loans and leases. Three of CPC’s prior ABS transactions are secured by small business loans and business cash advances. The Company, which was founded in 2009, focused on providing point of sale working capital finance to small businesses during the first ten years of its history. This strategy resulted in CPC working with and developing relationships with equipment finance partners.

Beginning in 2020, CPC launched its own equipment finance offering. Originations are sourced through CPC’s network of equipment finance company partners, which refer business to CPC for both working capital finance as well as for equipment finance. CPC generally funds originations that its partners are unable to finance, and the current portfolio consists mostly of the following: 1) originations in excess of risk-based portfolio concentration limits for a partner (for example obligor or industry limits) 2) originations that don't fit a partner's credit strategy and 3) originations from brokers. As of October 2023 the Company has funded over $500 million in equipment contracts. While CPC began originating equipment finance contracts in 2020, the partners on this product are largely the same as CPC’s partners for small business working capital loans. Including both equipment contracts and small business working capital, CPC has financed over $2.2 billion to more than 25,000 businesses since its founding.

The discounted pool balance represents the discounted value of the projected cash flows of the contracts included in the collateral pool using a discount rate based on the interest rate on the notes plus fees and other amounts. As of August 31, 2023, based on a discount rate of 9.50%, the discounted pool balance is $172.86 million (Statistical Pool). The discounted pool balance as of the initial cut-off date will total at least $178.30 million and is expected to have characteristics substantially similar to the Statistical Pool. The transaction also features a prefunding account of approximately $34.86 million that may be used to purchase additional contract value of approximately $40 million during the three month period following the closing date.

CPEF 2023-1 will issue four classes of notes. Credit enhancement includes excess spread, a reserve account, overcollateralization (O/C) and subordination for senior classes. The O/C is subject to a target equal to 13.00% of the current pool balance and a floor equal to 0.50% of the initial pool balance. The reserve account is funded at 1.00% of the initial pool balance and is non-declining.

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Related Publications

• Equipment Lease & Loan Global ABS Methodology
• Global Structured Finance Counterparty Methodology
• ESG Global Rating Methodology

Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

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