‘Cash is King’ in supporting SA Equipment Lease ABS ratings amid COVID-19 Payment Holidays
16 April 2020 – GCR Ratings (“GCR”) has published an industry research piece on the potential impact of payment holidays on the Equipment Lease asset back securities (Equipment Lease ABS) rated by GCR. The update is available for download at Industry Reports.
In conclusion
In the short to medium term, Equipment Lease ABS rated by GCR have sufficient cash reserves to withstand potential cash flow disruptions.
All the Equipment Lease ABS transactions rated by GCR are currently in their revolving phase. This reduces the liquidity pressure as only senior expenses and interest payments are due. However, payment holidays may exacerbate the already under pressure non-performing loan covenants, which may trigger amortisation of the Notes straining cash reserves.
Protection features including a combined waterfall mitigates defaulting on interest payments, especially on most Senior Notes whose assigned ratings consider timely interest payment and ultimate principal payment, as collection proceeds are first allocated to the interest on the notes prior to principal payments.
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