ARL First LLC Series 2012-1 'A (sf)' Rating Affirmed On Class A-2

OVERVIEW
  • ARL First LLC's series 2012-1 issuance is an ABS transaction backed by a portfolio of railcars.
  • We affirmed our 'A (sf)' rating on the class A-2 notes.
  • The affirmation reflects our view of the collateral's stable performance, ARL's servicing capability, and the transaction's ability to withstand the retrofitting cost under the new tank car regulations.
CENTENNIAL (S&P Global Ratings) Dec. 19, 2018--S&P Global Ratings today 
affirmed its 'A (sf)' rating on ARL First LLC's series 2012-1 class A-2 notes, 
an asset-backed securities (ABS) transaction backed by a portfolio of 
railcars.

The affirmation reflects our view of the collateral's stable performance, 
ARL's servicing capability, and the transaction's ability to withstand the 
retrofitting cost under the new tank car regulations.

As of June 30, 2018, the class A-2 notes were backed by a portfolio of 2,348 
railcars with a fair market value of $199.751 million. According to the 
servicer, the portfolio hasn't changed much since June. The fleet includes 
covered hoppers (859 or 37%) and tank cars (1,489 or 63%), with a current 
weighted average (by number of cars) age of approximately 10 years and 
remaining lease term of 22 months.

The portfolio includes tank cars providing flammable services, which are 
subject to a retrofitting requirement mandated by the tank car regulations 
finalized in 2015. We considered the tank car retrofitting cost and timing in 
our analysis, and the class A-2 notes were able to withstand these costs. 
Specifically, of the 1,489 tank cars, 747 cars (or 32% of the total portfolio) 
are in flammable services.

At closing, the transaction had issued A-1 and A-2 notes. As of the November 
2018 payment report, which we used for this analysis, the class A-1 notes were 
no longer outstanding. The class A-2 notes do not receive any principal 
payments until their expected principal repayment date in December 2022, 
unless an early amortization event is in place. The transaction is currently 
not in early amortization, and hence the class A-2 notes are outstanding at 
their original balance of $105.820 million. In November 2018, the debt service 
coverage ratio (DSCR) was 1.62x, the utilization ratio was 97.44%, and the 
liquidity reserve account was fully funded. The DSCR and utilization levels, 
which are used in the determination of an early amortization event, are well 
above the required threshold of 1.05x and 80%, respectively.

We will continue to review whether, in our view, the ratings assigned to the 
notes remain consistent with the credit enhancement available to support them, 
and we will take further rating actions as we deem necessary.

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