CCG Receivables Trust

Transcription

1 Presale: CCG Receivables Trust This presale report is based on information as of May 31, The ratings shown are preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. Preliminary Ratings Class Preliminary rating(i) Type Interest rate Preliminary amount (mil. $) Legal final maturity date A-1 A-1+ (sf) Senior Fixed June 14, 2018 A-2 AAA (sf) Senior Fixed Nov. 14, 2023 B A (sf) Subordinate Fixed Nov. 14, 2023 C BBB+ (sf) Subordinate Fixed Nov. 14, 2023 (i)the rating on each class of securities is preliminary and subject to change at any time. Profile Expected closing date June 14, Collateral Originator, seller, sponsor, and servicer Depositor Indenture trustee Owner trustee Custodian and backup servicer Midticket equipment loans and leases and associated equipment. Commercial Credit Group Inc. CCG Receivables IV LLC. US Bank N.A. Wilmington Trust N.A. Portfolio Financial Servicing Co. Issuer CCG Receivables Trust Underwriter Wells Fargo Securities LLC. Primary Credit Analyst: Joanne K Desimone, San Francisco (1) ; joanne.desimone@spglobal.com Secondary Contact: Peter W Chang, CFA, New York (1) ; peter.chang@spglobal.com See complete contact list on last page(s) MAY 31,

2 Credit Enhancement Summary (%)(i) CCG Receivables Trust CCG Receivables Trust Class A Initial(ii) Floor(ii) Initial(ii) Floor(ii) Subordination Overcollateralization(iii) Reserve account Total Class B Subordination Overcollateralization(iii) Reserve account Total Class C Overcollateralization(iii) N/A N/A Reserve account N/A N/A Total 3.35 N/A (i)excludes the excess spread credit enhancement (unstressed) of 7.16% and 6.38% per year for the series and transactions, respectively. (ii)percentage of the initial pool balance. (iii)the overcollateralization target is equal to 7.50% of the current pool balance. N/A--Not applicable. Rationale The preliminary ratings assigned to CCG Receivables Trust 's $ million asset-backed notes reflect: The availability of approximately 15.1%, 8.2%, and 6.6% credit support (based on stressed break-even cash flow scenarios) for the class A, B, and C notes, respectively. The credit support provides coverage of more than 5.0x, 3.0x, and 2.0x our 2.30%-3.00% net loss range for the class A, B, and C notes, respectively. Our net loss range reflects a stressed recovery rate range of 65%-75% with higher recovery rates assumed for lower rating categories. Our expectation that under a moderate ('BBB') stress scenario, all else being equal, our assigned preliminary ratings will remain within one rating category, for the class A notes, or within two rating categories, for the class B and C notes, of the preliminary ratings over the next 12 months, consistent with our credit stability criteria (see "Methodology: Credit Stability Criteria," published on May 3, 2010). Our expectation for the timely payment of periodic interest and principal by the final maturity date according to the transaction documents, based on stressed cash flow modeling scenarios using assumptions consistent with the assigned preliminary ratings. Our stressed cash flow runs assume a 1.0% per year servicing fee (the transaction's servicing fee is 0.75% per year). The collateral characteristics of the securitized pool of equipment loans and leases. We have considered in our stressed loss the lower percentage of waste segment originations in the series pool compared with the series pool. Commercial Credit Group's (CCG's) waste segment contracts (which are primarily loans financing the purchase of waste trucks) have historically exhibited lower and less volatile losses than its other two segments (construction and transportation). The pool is diversified by obligor, state, equipment type, and sector with each individual obligor representing well below the 1.50% threshold level to be considered an additive factor for obligor concentrations in our stressed loss calculations. MAY 31,

3 CCG's high historical recoveries. In our view, the company's recovery rates are significantly higher than those we observe for other commercial finance companies. We believe the higher rates are attributed to the relatively high percentage of used equipment in CCG's portfolio, management expertise in valuing equipment and remarketing to CCG customers, conservative underwriting, and loan terms that are much shorter than the equipment's remaining useful life. However, we lower the historical recovery rates when determining our net loss range to reflect the potential for lower recovery rates in an industry downturn or if CCG is no longer servicing the portfolio. CCG's role as servicer of the portfolio and its experience servicing four prior 144a transactions. Portfolio Financial Servicing Co. (PFSC), the backup servicer, has acted as backup servicer for CCG on multiple credit facilities since 2005 and has significant experience servicing loans and leases backed by equipment similar to that in the series transaction. The transaction's legal structure. Transaction Overview The series transaction is the fifth securitization backed by CCG collateral that S&P Global Ratings has rated. It is structured as a double-true sale of the assets from the originator, CCG, to the depositor, CCG Receivables IV LLC, and then from the depositor to the issuer, CCG Receivables Trust The issuer then pledges its right, title, and interest in the collateral to the indenture trustee on the noteholders' behalf (see chart 1). The series notes total $ million, and the collateral includes scheduled payments on equipment loans and leases, as well as any recovery proceeds, on the associated equipment. CCG Receivables Trust will sequentially pay principal to the class A-1, A-2, B, and C notes. MAY 31,

4 In rating this transaction, we will review the legal matters we believe are relevant to our analysis, as outlined in our criteria. Changes From CCG Receivables Trust The series transaction's structure is comparable to that of the series transaction. However, the pool composition and credit enhancement changes include: Segment mix changes. Waste segment originations have declined to 12.62% of the pool from 14.15%. We have taken this change into account in our stressed loss to reflect both the generally lower and less volatile historical losses of the waste segment originations compared with CCG's other segments. Slightly less obligor diversification, as the highest obligor concentration is 1.01% and the top five obligors total 4.70% compared with 0.74% and 3.50%, respectively, in series While we included the decreased obligor diversification in our analysis, the individual obligor concentration for each obligor in both pools is below the 1.50% threshold that we generally use to start incorporating event risk (obligor bankruptcy) as an additive factor into our MAY 31,

5 stressed loss. While we have not included an additive factor in our stressed loss calculation for obligor concentrations, we consider obligor concentrations over time in relation to hard enhancement levels. Less weighted average seasoning of 7.6 months compared with 11.4 months as of the closing date pool for series We have taken this reduced seasoning into account in our assumptions for timing of losses in our stressed cash flow analysis. Increased total hard credit enhancement for the class A and B notes to 14.35% and 5.25%, respectively, from 13.10% and 4.50% for series Issuance of class C notes. The series included only one subordinated class, class B. Transaction Structure The series transaction incorporates the following structural features: Overcollateralization equal to 2.35% of the pool balance at closing. The overcollateralization target is equal to the lesser of 2.35% of the initial pool balance and 7.50% of the current pool balance. Based on this target level, overcollateralization will not begin amortizing until 7.50% of the current pool balance is less than the initial overcollateralization amount. There is also an overcollateralization floor of 1.50% of the initial pool balance that limits the overcollateralization's total amortization. Subordination of 11.00% to support the class A notes and 1.90% to support the class B notes. A nonamortizing reserve account that is funded at 1.00% of the pool balance at closing. This, along with the significant amount of excess spread, serves as a liquid source of credit support. A cumulative net loss trigger that, if breached, would cause all available funds--after paying senior fees and expenses, note interest, priority principal, and any amounts required to restore the reserve account to its target--to be paid as principal to the notes. A backup servicer, PFSC, which agrees to assume servicing if CCG isn't the servicer. PFSC is also the transaction's custodian. Payment Structure Before an event of default (EOD) occurs, the series distributions will be made from available funds according to the payment priority shown in table 1. Principal is paid sequentially to the class A-1, A-2, B, and C notes, and the reserve account is nonamortizing. Overcollateralization can amortize but only after the target (7.50% of the current pool balance) is less than the initial overcollateralization amount and only until it reaches the floor of 1.50% of the initial pool balance. The transaction also includes a curable cumulative net loss trigger (see item 12), which, if in effect, would cause the transaction to use all available funds (after paying items 1-10) to repay principal (a "turbo" payment structure). Table 1 Payment Waterfall Priority Payment 1 Reimburse servicer advances. 2 Transition costs and expenses if a successor servicer is appointed, capped at $50,000 over the transaction's life. 3 The servicing fee (0.75% per year) plus servicer expenses, capped at $50,000 over the transaction's life. MAY 31,

6 Table 1 Payment Waterfall (cont.) Priority Payment 4 The indenture trustee fee ($8,500 per year), backup servicer fee ($24,000 per year), owner trustee fee ($4,000 per year), and custodian fee ($6,000), plus these parties' expenses and indemnities. The total of the expenses and indemnities is capped at $300,000 per year, but the cap increases to $500,000 per year following an event of default. 5 Class A note interest, pro rata, to the class A noteholders. 6 Priority principal to the noteholders (the amount by which the class A note balance exceeds the pool balance, if any). 7 Class B note interest. 8 Priority principal to the noteholders (the amount by which the class A and B note balance exceeds the pool balance, if any). 9 Class C note interest. 10 Principal to the noteholders (the amount by which the note balance exceeds the pool balance, if any). 11 Restore the reserve account to the required amount (1.00% of the initial pool balance). 12 If a trigger event hasn't occurred, pay the scheduled investor principal amount(i) to the noteholders. If a trigger event has occurred, use all remaining amounts as principal to pay the noteholders. 13 All amounts due to the indenture trustee, backup servicer, owner trustee, and custodian that are not paid in item 4 above because of caps. 14 All remaining amounts to the residual interestholder. (i)the scheduled investor principal amount is equal to the amount necessary to maintain or build overcollateralization to the target amount: the maximum of the lesser of 2.35% of the initial pool balance and 7.50% of the current pool balance; and 1.50% of the initial pool balance. Reprioritization Feature Item 6 in the payment priority serves to reprioritize available funds to pay class A principal ahead of class B interest but only if the class A note balance would exceed the pool balance or class B principal ahead of class C interest but only if the class A and B note balance would exceed the pool balance. The risk of this provision delaying class B and C interest is remote, in our opinion, consistent with the preliminary rating categories of the class B and C notes because the servicer's charge-off policy includes estimating recovery values at the time of default (creating lower calculated net losses). Plus, the servicer's historical recovery rates are high. For priority principal to be paid, a single month of losses would have to exceed the amount commensurate with the preliminary ratings on the class B or C notes. Items eight and 10 also reprioritizes available funds to maintain parity between the pool and all notes. Impact Of Cumulative Net Loss Trigger The trigger event will be in effect if the cumulative net loss ratio exceeds the thresholds listed below or if a servicer default has occurred. If the cumulative net loss ratio is below the threshold noted below for three consecutive collection periods, the trigger event will no longer exist (i.e., it can be "cured"; see table 2). The cumulative net loss ratio trigger levels for each time period are well above CCG's actual historical cumulative net losses. We consider any impact of the trigger in our stressed cash flow scenarios, but the trigger is currently showing no impact on our break-even cash flow results for series MAY 31,

7 Table 2 Cumulative Net Loss Ratios Collection period (mos.) Cumulative net loss ratio (%) plus 4.50 Pool Analysis As of the April 30, 2017, cut-off date, the series net book value was $ million (see table 3). The pool includes originations from CCG's three primary segments of construction, waste, and transportation and is diversified by obligor and state. This composition generally reflects CCG's overall managed portfolio. The pool consists of 1,078 obligors and 1,559 contracts, resulting in an average net book value of $170,595 and an average obligor balance of $246,714. The weighted average remaining term is 41 months, and the weighted average seasoning is eight months. Table 3 Collateral Comparison(i) CCG Receivables Trust Net book value ($) 265,957, ,080, ,000,158 No. of pool receivables 1,559 1,330 1,788 Avg. net book value 170, , ,971 No. of obligors 1,078 1,004 1,143 Avg. obligor net book value 246, , ,965 Weighted avg. original term (mos.) Weighted avg. remaining term (mos.) Weighted avg. seasoning (mos.) Weighted avg. contract yield (%) Customer industry (%) Transportation Construction Waste Other Top obligors (%) Total top MAY 31,

8 Table 3 Collateral Comparison(i) (cont.) CCG Receivables Trust State concentrations TX=14.37 CA=14.88 CA= CA=13.84 TX=12.23 TX=12.80 IL=9.79 IL=10.08 IL=7.25 VA=5.55 NC=5.81 NC=7.25 NC=4.74 GA=4.66 SC=5.51 (i)all percentages except yield are of the initial net book value. Portfolio Performance Portfolio growth As of March 31, 2017, the net book value of CCG's managed portfolio totaled $784 million. The portfolio has grown steadily since 2005, with nearly all growth from CCG's direct originations (as opposed to portfolio acquisitions). Since its inception, CCG has maintained a stable and scalable business model, unlike many other commercial finance companies, that has led to stable and measured growth, as well as profitability even during the economic downturn during Delinquencies and net loss Table 4 shows the delinquency and net loss performance of CCG's managed portfolio. While CCG's delinquencies increased somewhat during , they were less volatile than those of other commercial finance companies during the same period. Net losses remained low and stable even during the recession. While gross losses (full contract balance of receivables at time of default) did increase from 2008 to 2009, recovery rates remained stable, resulting in stable and low net losses. The company's recovery rates are significantly higher than those of commercial financing companies that have similar collateral because of several factors: A high percentage of used collateral, which is subject to slower depreciation than new equipment; Loan terms that are much shorter than the equipment's remaining useful life; Cross-collateralization across multiple pieces of equipment; A conservative underwriting process; Personal guarantees; and Consistent remarketing to CCG's existing customer base (resulting in CCG realizing higher retail prices instead of realizing lower wholesale or auction prices). Table 4 CCG Total Managed Portfolio Performance As of March Net book value (mil. $) Delinquency period (%) MAY 31,

9 Table 4 CCG Total Managed Portfolio Performance (cont.) days days or greater Total delinquencies as a % of net book value Year ended March Avg. net book value during the period (mil. $) Net loss (gain) as a % of the avg. net book value Static pool loss data CCG has provided detailed static pool loss data on its equipment loan portfolio since 2005, including performance during the recession. Data were provided on a total basis as well as broken out by the waste, transportation, and construction segments. The issuer presented loss performance on a monthly static pool basis, covering both gross (the contract balance outstanding at time of default) and net losses. Because obligor concentrations can increase significantly in static pools that are grouped in short origination time periods such as monthly or quarterly, we analyzed annual groups of static pool loss data. We believe the annual static pools more closely reflect the level of diversification in the series pool. Cyclical default frequency tied to industry sectors The data show that portfolio performance is cyclical in the construction and transportation sectors, with gross losses increasing significantly for 2007 and 2008 originations but then improving quickly and materially for 2009 through 2011 originations. The waste sector showed considerably less volatility during the same period, as it didn't experience high volatility in gross losses until fiscal-year Management attributes this to concentrated net losses in a short period of time during the fiscal year, clustered among a small number of recycling industry obligors that were affected by falling commodity prices, especially for metals. In general, net losses in the construction and transportation sectors during peaked at two to three times as high as those in the waste sector (see chart 2). Along with these historical trends, our loss assumption also takes into account our forward-looking views on the construction and transportation industries and the recently improved historical performance. While we believe these industries are currently stable and have shown much improved loss performance in recent years, we take into account in our expected loss the potential future volatility of these industries. MAY 31,

10 Chart 2 Surveillance Update We currently rate three outstanding CCG transactions: series , , and Series paid off in March 2016 with 0.09% in cumulative net losses. Table 5 shows the net loss performance as of the May 2017 distribution date for the outstanding transactions. The projected net losses (using the pool factor) are well below our initial cumulative net loss range for each transaction, which are well above CCG's historical net loss levels because of the stresses we apply to the historical recovery rates, among other factors. On May 12, 2017, we raised our ratings on the subordinated classes of series and and affirmed our ratings on the senior classes for each of those series (see "Two Ratings Raised And Three Affirmed On Two CCG Receivables Trust Transactions"). Table 5 CCG Receivables Trust's Outstanding Transaction Pool Information As Of May 2017 Distribution Date Transaction Months outstanding Pool factor (%) Current CNL (%) 60+ delinq. rate (%) CNL grossed up by pool factor (%) MAY 31,

11 Table 5 CCG Receivables Trust's Outstanding Transaction Pool Information As Of May 2017 Distribution Date (cont.) Transaction Months outstanding Pool factor (%) Current CNL (%) 60+ delinq. rate (%) CNL grossed up by pool factor (%) CNL--Cumulative net loss. S&P Global Ratings' Cumulative Net Loss Range: 2.30%-3.00% Similar to our approach for the prior CCG transactions, we derived our net loss range for the series transaction using gross and net loss annual static pool data for CCG's historical originations. We derived an expected gross loss by considering the total portfolio performance, as well as the individual segment performance (construction, transportation, and waste). Our analysis considers gross losses because in high recovery rate assets, like those in CCG's portfolio, gross losses provide a clearer picture of performance than net losses. High recovery rates can mask the extent of default frequency, which is relevant in high stress scenarios. Our assessment for cumulative net loss represents our opinion of expected gross loss minus our stressed recovery rate. Determining expected gross loss To determine our expected gross loss, we considered the higher losses on CCG's originations during the recession, but we also took into account more recent improvements in performance and our positive outlook for the construction and transportation segments. Our expected gross loss is higher than the low loss levels for CCG's more recent originations because it incorporates volatility and the speed with which losses rose for earlier vintage originations during periods of economic weakness. The expected gross loss takes into account gross losses on fully and partly liquidated pools. We projected gross losses for partly liquidated pools using a loss curve based on the liquidated pools' average loss curve that has a moderate degree of back-ended loss timing. Our expected gross loss also takes into account the pool's seven months of and our view that a certain percentage of total losses will have already occurred on the pool by this month of amortization. As part of its credit and collections policies, CCG, as the servicer, may elect to modify or extend a contract, as long as it meets certain conditions limiting the number and timing of such extensions. We have observed select modifications among other large captive and independent midticket equipment finance companies. We also accounted for this when determining our expected loss. Stressed recovery rate calculation To arrive at our cumulative net loss range, we applied a stressed recovery rate to the expected gross loss. We determine our stressed recovery rate assumption using CCG's historical recovery rate statistics. Using these statistics to project a future stressed recovery rate is appropriate, in our view, because CCG provided detailed recovery rate information for its managed portfolio from (a period that includes a full business cycle) and because the company's underwriting and servicing standards are stable. We placed more weight on the company's recovery experience from to establish a base-case recovery rate. We then developed stressed recovery rates for the series transaction to reflect the potential deterioration in recoveries if CCG is no longer servicing the portfolio MAY 31,

12 or a downturn occurs in one or more industry segments. Our cumulative net loss range reflects less stress (i.e., higher stressed recovery rates) for lower rating categories within a 65%-75% range. Slightly higher net loss range Based on our review of the data, the series collateral pool's characteristics, the expected gross loss, and our stressed recovery rate range (with higher stressed recovery rates for lower rating categories), our cumulative net loss range for this pool is 2.30%-3.00%. This range encompasses lower cumulative net losses for lower rating categories given the higher stressed recovery rate assumptions as well as higher cumulative net losses for higher rating categories given lower stressed recovery rate assumptions. This cumulative net loss range is slightly higher than that for the series transaction (2.50%-2.80%) reflecting slightly higher overall obligor concentrations, a lower concentration of contracts from the waste segment, and some increases in overall managed pool static gross losses in more recent vintages. CCG's waste segment originations have historically exhibited lower and less volatile losses than the transportation and construction segments, so the higher percentage of the more volatile segments contributes to our higher gross loss assumption for the overall pool. In addition to these historical differences by segment, our gross loss also accounts for our outlook for the more volatile transportation and construction segments, which have exhibited stress in the last year but have seen some stabilization in overall collateral values in recent months. Our stressed recovery rate assumptions are the same for the series pool as they were for the series pool.while we consider our forward-looking view on recovery rates for segments that have recently experienced stress such as the transportation segment, our view is that our stressed recovery rate range remains sufficient to address potential decreases in recovery rates consistent with the preliminary rating categories. Furthermore, we consider the continued strong and stable recovery rates achieved by CCG even in stressful periods. Cash Flow Modeling Assumptions And Results Range of loss-timing patterns considered We modeled the series transaction to simulate 'AAA', 'A', and 'BBB' stress scenarios and applied two different loss-timing assumptions. When determining the loss-timing assumptions, we took into account the pool's seven months of seasoning. The front-end loss-timing scenario, which reduces available excess spread early in the transaction, generally resulted in more stress on the notes. Charge-off, recovery, and prepayment assumptions We assumed a six-month charge-off/recovery lag, which contemplates the company's historical timing of charge-offs and repossessions as well as a stressed recovery period. Consistent with our approach on other transactions we have rated, we considered the impact of the cumulative net loss trigger, but our stressed cash flows evidence no impact of the trigger on the notes' break-even loss levels. For class A, we assumed a 22% constant prepayment rate (CPR) and a 66% recovery rate. For classes B and C, we assumed a 19% CPR and a 70% and 74% recovery rate, respectively. These recovery rate assumptions reflect a significant stress from CCG's realized recovery levels. Although the contractual servicing fee rate is 0.75% per year, we MAY 31,

13 modeled 1.00% per year to simulate a market-standard rate. Stressed cash flow scenarios assume fees at capped levels Each cash flow scenario assumes payment of fees to the backup servicer, the custodian, and the trustees, as well as expenses modeled at the maximum levels. These expenses are capped at $300,000 per year before an EOD, but the cap increases to $500,000 after an EOD. We consider that, following an EOD, when the higher cap level is in effect, the payment priorities will also convert to a full turbo payment structure. In addition, we assumed a one-time successor servicer transition expense of $50,000, as well as a one-time servicer expense of $50,000. Based on our cash flow analysis, the preliminary rated notes all paid timely interest and ultimate principal by legal final maturity. They withstood a net loss level that we believe is consistent with the assigned preliminary rating categories (see table 6). Table 6 Cash Flow Assumptions And Results Class A B C Scenario (preliminary rating) AAA (sf) A (sf) BBB+ (sf) Voluntary prepayments (%) Recoveries (%) Recovery lag (mos.) Cumulative net loss timing curve 1 (%) 75/20/5 75/20/5 75/20/5 Approximate break-even levels curve 1 (%) Cumulative net loss timing curve 2 (%) 25/35/40 35/35/30 35/35/30 Approximate break-even levels curve 2 (%) We evaluated the class A-1 notes' size by assuming zero losses and zero prepayments during the first 12 months so that we only considered scheduled principal payments (we considered only 11 of the 12 scheduled principal payments when evaluating the class A-1 notes). The class A-1 notes have a June 14, 2018, final maturity date. Sensitivity Analysis In addition to analyzing break-even cash flows, we conducted a sensitivity analysis that included running a moderate stress scenario to determine the loss coverage level and potential rating migration that could occur for each class of notes (see chart 3). MAY 31,

14 Chart 3 Scenario: 4.40% (2x) cumulative net loss results Assuming 4.40% cumulative net losses (approximately 2x our moderate stress scenario net loss assumption), the credit enhancement for the preliminary rated class A, B, and C notes begins at 4.36x, 2.38x, and 1.97x respectively. The multiples decline through month six reflecting excess spread leakage during the six-month lag assumed for losses and recoveries. The coverage multiples start rising again in month seven and continue to increase thereafter. Even the lowest multiple levels (month six) are above the threshold multiples that we would likely use to determine whether the notes would be susceptible to a one-category downgrade in the first 12 months. This is consistent with our credit stability criteria for the class A notes and shows coverage that is stronger than our credit stability criteria for the class B and C notes. CCG Overview CCG is a privately owned commercial finance company that specializes in the transportation, construction, and waste management sectors. Its majority owner is a private investor who has significant experience in the financial services sector. Since its inception in 2004, the company has targeted the midticket segment, in which borrowers typically finance equipment pricing from $50,000 to $1 million and, in select cases, up to several million dollars. Although most MAY 31,

15 equipment has multipurpose applications, there are some specialty pieces, such as large cranes. The vast majority of CCG's financial products involve fully amortizing loans, with original terms generally in the three- to five-year range, and a few larger credit exposures that have longer terms of up to seven years. The company competes against captive-finance companies, banks, and other independent finance firms. CCG has originated more than $2.9 billion in equipment loans and leases since inception, and has been profitable for its more than 10 years of operations. The company has, in our view, significant financial flexibility, as evidenced by meaningful equity capitalization and multiyear credit facilities with multiple lenders that were renewed during the period, when many competitors' funding was cut off. CCG's management is highly experienced in the midticket commercial finance industry. When the company started in 2004, its senior management team each had more than 15 years of direct lending experience. Most of them worked together at Financial Federal Credit Inc., a Houston-based independent equipment finance company with a major presence in many of the same segments in which CCG operates. With both the prior tenure at Financial Federal Credit Inc. and the more recent track record at CCG, current management has longstanding experience managing cyclical commercial finance assets during periods of strong and weak economic growth. CCG Originations, Underwriting, And Servicing CCG operates nationally, with headquarters in Charlotte, N.C., where almost all of its underwriting and servicing operations are located. It also maintains smaller offices in Chicago and Buffalo, N.Y., with credit authority, subject to its delegation of authority policies. It maintains several regional sales offices, with a strong geographic presence in the South and Midwest. Unlike many equipment finance companies that have oriented their originations around vendors or manufacturers, CCG uses a direct sales model, where sales staff generate new business by directly calling prospective customers. Manual credit underwriting process The company's underwriting practices employ manual rather than automated processes to assess borrower credit risk or loss-given default. Manual credit underwriting is common among companies financing midticket equipment in the commercial finance sector, whereas companies financing small-ticket items use automated credit scoring models. A seasoned credit officer, who has both regional and specific equipment expertise, manually underwrites each loan or lease. The company generally compiles an extensive credit and legal package for each new borrower or new credit request. CCG approves loans by assessing business variables such as an obligor's cash flow, collateral value, and the character of its principals. Prospective borrowers typically submit business or personal financial statements, tax returns, detailed equipment descriptions, transaction terms, and references. CCG also usually obtains credit reports and bank references from Dun & Bradstreet. It makes all credit decisions according to a specific credit policy governing the delegation of lending authority, where larger exposures require approval by more-senior staff. Almost all obligors provide personal guarantees, which contribute to the company's high recovery rates. Centralized and experienced servicing CCG will act as the servicer for the transaction. The originating office performs all servicing activities for a contract, and obligors send all payments to a lockbox account maintained at Wells Fargo Bank N.A. CCG will actively MAY 31,

16 communicate with a delinquent obligor in the first 90 days of nonpayment. After 90 days of delinquency, CCG will typically write down the account to its estimated realizable value and begin repossession activities, though it may agree to continue to work with the obligor in lieu of repossession. Once it repossesses the equipment, CCG often sells it to its existing customer base, though it may also conduct public sales by advertising in newspapers and trade journals. It handles all liquidation activity in house. PFSC, the backup servicer, will assume the role of servicer if the current servicer resigns or is terminated. To minimize interruptions in such a scenario, PFSC will receive servicer reports and portfolio files from CCG every month throughout the transaction. Cross-Collateralization In some instances, contracts in the series pool are subject to cross-collateralization and cross-default provisions in other contracts that have the same obligor but that are not included in the series pool. Cross-collateralization is a common feature in commercial finance transactions. To address potential competing claims, the series transaction documents include an intercreditor agreement. In that agreement, the sponsor agrees to subordinate its rights to cross-collateralization relating to the equipment securing the series pool, and the issuer similarly agrees to subordinate its rights to cross-collateralization relating to the equipment outside of the series pool. Related Criteria And Research Related Criteria General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017 Criteria - Structured Finance - General: Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions, Aug. 8, 2016 Criteria - Structured Finance - General: Methodology: Criteria For Global Structured Finance Transactions Subject To A Change In Payment Priorities Or Sale Of Collateral Upon A Nonmonetary EOD, March 2, 2015 Criteria - Structured Finance - General: Global Framework For Cash Flow Analysis Of Structured Finance Securities, Oct. 9, 2014 Criteria - Structured Finance - General: Criteria Methodology Applied To Fees, Expenses, And Indemnifications, July 12, 2012 General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012 Criteria - Structured Finance - General: Standard & Poor's Revises Criteria Methodology For Servicer Risk Assessment, May 28, 2009 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Appendix III: Revised UCC Article 9 Criteria, Oct. 1, 2006 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Criteria Related To Asset-Backed Securities, Oct. 1, 2006 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Securitizations By Code Transferors, Oct. 1, 2006 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Select Issues Criteria, Oct. 1, 2006 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Special-Purpose Entities, Oct. 1, 2006 Criteria - Structured Finance - ABS: Equipment Leasing Criteria: Structural Considerations In Rating Lease-Backed MAY 31,

17 Transactions, Sept. 1, 2004 Criteria - Structured Finance - ABS: Equipment Leasing Criteria: Credit Risks Evaluated In Lease-Backed Securitizations, Sept. 1, 2004 Related Research Two Ratings Raised And Three Affirmed On Two CCG Receivables Trust Transactions, May 12, 2017 U.S. Economic Forecast: I'm Still Standing!, March 30, 2017 Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016 In addition to the criteria specific to this type of security (listed above), the following criteria articles, which are generally applicable to all ratings, may have affected this rating action: "Post-Default Ratings Methodology: When Does Standard & Poor's Raise A Rating From 'D' Or 'SD'?," March 23, 2015; "Global Framework For Assessing Operational Risk In Structured Finance Transactions," Oct. 9, 2014; "Methodology: Timeliness of Payments: Grace Periods, Guarantees, And Use of 'D' And 'SD' Ratings," Oct. 24, 2013; "Counterparty Risk Framework Methodology And Assumptions," June 25, 2013; "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," Oct. 1, 2012; "Methodology: Credit Stability Criteria," May 3, 2010; and "Use of CreditWatch And Outlooks," Sept. 14, The analysts would like to thank Jie Liang, Radhika Wadhi, and Jenna Cilento for their analytical contributions to this presale report. Analytical Team Primary Credit Analyst: Joanne K Desimone, San Francisco (1) ; joanne.desimone@spglobal.com Secondary Contact: Peter W Chang, CFA, New York (1) ; peter.chang@spglobal.com MAY 31,

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