DBRS Morningstar Assigns Provisional Ratings to GCI Funding I LLC, Fixed Rate Asset Backed Notes, Series 2020-1

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of fixed rate asset backed notes (Series 2020-1) to be issued by GCI Funding I LLC:

-- $232,790,000 Fixed Rate Asset Backed Notes, Series 2020-1, Class A at A (sf)
-- $11,790,000 Fixed Rate Asset Backed Notes, Series 2020-1, Class B at BBB (sf)

The provisional ratings are based on DBRS Morningstar’s review of the following analytical considerations:

(1) The transaction’s capital structure and the form and sufficiency of available credit enhancement.
-- Overcollateralization, note subordination (as applicable) and reserve account amounts create credit enhancement levels and liquidity that are commensurate with the proposed ratings.
-- The cash flows expected to be generated by the collateral pool for the Series 2020-1 under the stressed cash flow scenarios for each ratings are sufficient to make interest and principal payments to investors in accordance with the terms of the Related Documents.

(2) The cash flow scenarios consider DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the Coronavirus Disease (COVID-19), available in its commentary “Global Macroeconomic Scenarios: September Update,” published on September 10, 2020. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, and have regularly updated them. The scenarios were last updated on September 10, 2020, and are reflected in DBRS Morningstar’s rating analysis.

(3) The cash flow scenarios consider the moderate macroeconomic scenario outlined in the commentary, with the moderate scenario serving as the primary anchor for current ratings. The moderate scenario remains predicated on a more rapid return of confidence and a steady recovery heading into 2021.

(4) Despite the sharp decline in trade flows earlier in the year, global trade exhibited signs of a healthy rebound as early as the summer of 2020. The disciplined approach with regard to managing capacity both by lessors and container shipping companies, as well as the rolling re-opening of the global economies have resulted in a relatively sharp pick-up in trade flows by the middle of 2020.

(5) Container shipping liners’ financial performance in 2020 to date has been better than originally feared amidst the peak of the coronavirus pandemic. In response to a sharp slowdown in trade, shipping liners have aggressively reduced ship capacity. Tightening capacity and increase in trade flows have resulted in a sharp increase in spot shipping rates. Container shipping companies have also benefitted from the low fuel prices.

(6) A number of container shipping companies, including certain lessees in the collateral pool securing the Series 2020-1 Notes, have received new rounds of financing supported by the respective state governments, thus, helping them to shore up their financial position.

(7) High proportion of containers on long-term lease contracts has helped support high utilization rates and relatively stable per diems through the coronavirus pandemic, as reported by major marine container lessors. At the onset of the transaction, the collateral pool for the Series 2020-1 will exclusively comprise marine containers subject to a mix of long-term leases and direct-finance leases, with no off-hire containers. As such, the repayment profile for the Series 2020-1 is expected to benefit from a relatively long remaining lease term for the collateral pool.

(8) Structural features of the transaction that require the Class A Notes and Class B Notes to enter into an accelerated principal amortization if certain performance triggers are tripped, or if credit enhancement deteriorates.

(9) Global Container International LLC’s (GCI) capabilities with regard to managing the fleet of marine containers. While the company was formed only slightly over two years ago, the executive management team has more than 50 years of combined industry experience and comprises former President of Beacon Intermodal (Geffrey Gannon, founder and CEO of GCI) and the former Senior Vice President at TAL International (Adrian Dunner, founder and COO of GCI). Moreover, GCI has strong equity backing from Wafra Inc. and Hudson Structured Capital Management.
DBRS Morningstar has performed an operational review of GCI and considers the company to be an acceptable manager of the marine container leasing fleet.

(10) The legal structure and expected legal opinions that will address true sale, enforceability, nonconsolidation, and security interest perfection issues, and the consistency with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance.”

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating Marine Container Securitizations (September 27, 2018), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press releases: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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