CONFIDENTIAL
BELMONT RIDGE BANK, NATIONAL ASSOCIATION 600 Lexington Avenue, 32nd Floor New York, NY 10022 OCC Charter No. 91-4428
April 8, 2024
Lisa Okoro Senior Director, Structured Finance Pinnacle Ratings Group Inc. 7 World Trade Center, 38th Floor New York, NY 10006
Thomas Pratt Vice President, ABS Ratings Crestline Ratings International LLC 55 Water Street, Suite 3100 New York, NY 10041
Re: Belmont Ridge Equipment Trust 2024-A — Request for Rating Confirmation in Connection with Proposed $48,000,000 Tap Issuance of Additional Class A-2 Notes (CUSIP 07839LAB3 / ISIN US07839LAB36)
Dear Ms. Okoro and Mr. Pratt:
1. Introduction and Purpose of Letter
Belmont Ridge Bank, National Association ("BRB"), in its capacity as Originator and Servicer under the Sale and Servicing Agreement dated as of January 29, 2024 (as the same may be amended, supplemented, or otherwise modified from time to time, the "Sale and Servicing Agreement"), is writing to you in connection with a proposed tap issuance of additional Class A-2 Notes (as defined herein) by Belmont Ridge Equipment Trust 2024-A (the "Trust"), a Delaware statutory trust formed on January 8, 2024 under the Delaware Statutory Trust Act, 12 Del. C. §§ 3801–3826.
The Trust is the issuing entity under the existing Series 2024-A program. The Series 2024-A Notes were issued pursuant to a registration statement on Form SF-3, Registration Statement No. 333-276891, filed with the Securities and Exchange Commission (the "SEC"), with the base prospectus dated January 15, 2024 and the related prospectus supplement dated January 22, 2024. The Trust remains subject to the ongoing reporting requirements under the Securities Exchange Act of 1934, as amended, and files periodic reports on Form 10-D, Form 10-K, and, as applicable, Form 8-K with the SEC.
By this letter, BRB respectfully requests that each of Pinnacle Ratings Group Inc. ("Pinnacle") and Crestline Ratings International LLC ("Crestline" and, together with Pinnacle, the "Rating Agencies") confirm that the proposed tap issuance described in detail below (the "Tap Issuance") will not result in a downgrade, withdrawal, or placement on negative watch (including, without limitation, any "Credit Watch Negative," "Developing," or analogous designation) of the existing ratings assigned to the Class A-2 Notes (CUSIP 07839LAB3), which ratings are currently AAA(sf) by Pinnacle and Aaa(sf) by Crestline (collectively, the "Existing Ratings").
This letter has been prepared with the assistance of Calderwood & Harkness LLP, counsel to BRB and the Trust, and has been reviewed and authorized by the undersigned in accordance with BRB's internal corporate authorization procedures. BRB and its advisors have endeavored to include in this letter and the accompanying exhibits all material information that the Rating Agencies may require in order to evaluate the Tap Issuance and deliver the requested confirmations. To the extent any additional information is required, BRB and its counsel stand ready to provide such information on a prompt basis.
2. Background — Original Series 2024-A Issuance
For the convenience of the Rating Agencies, BRB sets forth below a summary of the original Series 2024-A issuance and the key transaction documents governing the Trust.
The original Series 2024-A Notes were issued on January 29, 2024 (the "Original Closing Date"). The Notes were issued pursuant to that certain Indenture dated as of January 29, 2024 (the "Indenture"), among the Trust, as Issuer, BRB, as Servicer, and Meridian Fiduciary Services, Inc., a New York corporation, as Indenture Trustee, Paying Agent, Calculation Agent, and Note Registrar (in such capacities, the "Indenture Trustee"). The Indenture governs the issuance, authentication, and administration of the Series 2024-A Notes and sets forth the rights, duties, and obligations of the Issuer, the Servicer, and the Indenture Trustee, including the priority of payments, events of default, and remedies available to Noteholders.
Keyline Trust Company, National Association, a nationally chartered trust company with its principal office at 2100 Market Street, Suite 800, Philadelphia, Pennsylvania 19103, serves as Owner Trustee of the Trust under that certain Trust Agreement dated as of January 22, 2024 (the "Trust Agreement"), between BRB, as Depositor, and Keyline Trust Company, National Association, as Owner Trustee.
The original Series 2024-A capital structure, as of the Original Closing Date, was as follows:
The Class A-2 Notes were assigned CUSIP 07839LAB3 and ISIN US07839LAB36 at the time of original issuance. The Class A-2 Notes are listed on the NYSE and are eligible for book-entry settlement through The Depository Trust Company ("DTC").
Since the Original Closing Date, both the Class A-1 Notes and the Class A-2 Notes have performed in accordance with their terms. No Event of Default or Servicer Default has occurred under the Indenture or the Sale and Servicing Agreement, respectively. The Trust has made all scheduled payments of interest and principal on each Payment Date without interruption. As of the most recent Determination Date (March 31, 2024), the cumulative net loss rate on the collateral pool was 0.12%, which is well within the base-case loss assumptions reflected in the Rating Agencies' original rating analyses.
3. Summary of Proposed Tap Issuance
BRB proposes to cause the Trust to issue an additional $48,000,000 aggregate principal amount of Class A-2 Notes (the "Tap Notes") under Supplemental Indenture No. 2 to the Indenture dated January 29, 2024 (the "Supplemental Indenture"). Supplemental Indenture No. 1, dated February 28, 2024, effected certain administrative amendments to the Indenture that were not material to the ratings analysis and did not require rating agency confirmation. A draft of the Supplemental Indenture is enclosed herewith as Exhibit B.
The Tap Notes will be issued at the same CUSIP (07839LAB3) and ISIN (US07839LAB36) as the original Class A-2 Notes and will be fully fungible with the original Class A-2 Notes upon settlement. Following the settlement of the Tap Issuance, all Class A-2 Notes—whether originally issued or issued as Tap Notes—will be treated as a single class for all purposes under the Indenture, including voting, payment priority, and acceleration.
The key economic and structural terms of the Tap Notes are summarized below:
Following the settlement of the Tap Issuance, the aggregate outstanding principal amount of Class A-2 Notes will be $268,000,000 ($220,000,000 original + $48,000,000 Tap Notes). The total outstanding principal amount of Series 2024-A Notes will be $398,000,000, consisting of $130,000,000 of Class A-1 Notes and $268,000,000 of Class A-2 Notes.
The Tap Issuance is being underwritten by Ashford Capital Markets LLC (CRD No. 284756), acting as sole bookrunner and lead underwriter (the "Underwriter"). The primary contact at the Underwriter for purposes of this transaction is Julian Voss, Managing Director, ABS Syndicate, Ashford Capital Markets LLC. The underwriting discount is 30 basis points on par, representing an aggregate underwriting fee of $144,000. After deduction of the underwriting discount, net proceeds to the Trust will be $47,916,000.
The net proceeds from the Tap Issuance will be used exclusively by the Trust to purchase additional eligible equipment-lease receivables from BRB under the Sale and Servicing Agreement, as amended by Amendment No. 1 to the Sale and Servicing Agreement (the "SSA Amendment"), a draft of which is being prepared by Calderwood & Harkness LLP and will be provided to the Rating Agencies upon execution. The purchase of additional receivables will be effected simultaneously with the settlement of the Tap Notes.
The anticipated pricing date for the Tap Issuance is April 19, 2024. The anticipated settlement and closing date is in May 2024, with the exact date to be determined based on market conditions and the completion of all conditions precedent to closing, including the receipt of rating agency confirmations as described in this letter.
4. Tap Pool — Collateral Characteristics
The Tap Issuance will be backed by a discrete pool of small-ticket commercial equipment leases originated by BRB in the ordinary course of its equipment finance business (the "Tap Pool"). The Tap Pool receivables will be added to the Trust's existing asset base via Amendment No. 1 to the Sale and Servicing Agreement. All receivables in the Tap Pool satisfy the eligibility criteria set forth in Section 2.03 of the Sale and Servicing Agreement, as modified by the SSA Amendment, and have been originated in accordance with BRB's underwriting guidelines, which have not been materially modified since the Original Closing Date.
The key summary statistics of the Tap Pool, as of the statistical cut-off date of March 31, 2024, are as follows:
The Tap Pool is well-diversified by both equipment type and geographic location, consistent with BRB's origination strategy and the characteristics of the original collateral pool.
Equipment Type Distribution:
The equipment type distribution of the Tap Pool is broadly consistent with the distribution of the original collateral pool, with a modest increase in the IT/networking and medical devices categories relative to the original pool, reflecting prevailing trends in BRB's origination volume during the fourth quarter of 2023 and the first quarter of 2024. The "Other" category includes, among other things, restaurant equipment, fitness equipment, and point-of-sale systems, with no single sub-category exceeding 3.0% of the Tap Pool balance.
Geographic Concentration:
No single state other than those listed above represents more than 5.0% of the Tap Pool balance. The geographic distribution reflects BRB's nationwide origination platform and is generally in line with the distribution of the original collateral pool.
Detailed pool stratification tables, including distributions by equipment type, geographic location, obligor concentration, seasoning, remaining term, original term, implicit lease rate, and FICO equivalent credit score, are enclosed as Exhibit C to this letter.
5. Post-Tap Credit Enhancement Structure
The credit enhancement structure for the Class A-2 Notes following the Tap Issuance will continue to provide robust protection to Noteholders consistent with the AAA(sf) / Aaa(sf) ratings. The post-tap credit enhancement structure is as follows:
Overcollateralization:
The overcollateralization ("OC") target for the Trust, post-tap, will remain at 4.50% of the aggregate outstanding note balance. Based on a post-tap aggregate note balance of $398,000,000, the required OC target amount is $17,910,000 ($398,000,000 × 4.50%).
The incremental overcollateralization contributed by the Tap Pool is $1,344,000, representing the excess of the Tap Pool's aggregate discounted receivable balance ($49,344,000) over the aggregate principal amount of the Tap Notes ($48,000,000). This incremental OC represents approximately 2.72% overcollateralization on the Tap Notes at issuance ($1,344,000 ÷ $48,000,000 × 100 = 2.80%, or 2.72% when measured against the combined receivable balance). The existing OC from the original pool, together with the incremental OC from the Tap Pool, is expected to satisfy the 4.50% OC target immediately upon settlement of the Tap Issuance.
Reserve Account:
The reserve account will be maintained at a level equal to 1.00% of the aggregate outstanding note balance. Based on a post-tap aggregate note balance of $398,000,000, the required reserve account balance is $3,980,000 ($398,000,000 × 1.00%). The reserve account will be funded to the required level on or prior to the settlement date of the Tap Issuance from available funds in the collection account, in accordance with the priority of payments set forth in the Indenture.
Subordination:
The Series 2024-A structure is a single-A-class structure (with two sub-tranches, Class A-1 and Class A-2, ranking pari passu in right of payment). Credit support is provided solely through overcollateralization, the reserve account, and excess spread. There is no structural subordination of any class of Notes within the Series 2024-A capital structure.
Excess Spread:
The annualized excess spread available to the Trust following the Tap Issuance is calculated as follows:
• Weighted-average implicit lease rate (Tap Pool): 7.14%
• Less: Weighted-average coupon on Class A-2 Notes: (5.78%)
• Less: Servicing fee: (0.50%)
• Net excess spread (annualized): 0.86%
This level of excess spread is consistent with the excess spread generated by the original collateral pool and provides an additional cushion against credit losses and delinquencies in the Tap Pool.
There are no structural changes to the payment waterfall or priority of payments from the original Series 2024-A structure as a result of the Tap Issuance. The Tap Notes will participate in the payment waterfall on a pro rata basis with the original Class A-2 Notes, as if they had been issued on the Original Closing Date (subject to accrual adjustments for the short first interest period, if applicable).
6. Servicing Arrangements
The servicing arrangements for the Trust will remain unchanged following the Tap Issuance. A summary of the current servicing arrangements is set forth below.
Servicer: Belmont Ridge Bank, National Association, serves as Servicer under the Sale and Servicing Agreement. BRB will continue to service both the original collateral pool and the Tap Pool receivables in accordance with its customary servicing practices and the servicing standards set forth in the Sale and Servicing Agreement.
Servicing Fee: The servicing fee payable to BRB is 0.50% per annum of the outstanding pool balance, calculated and paid monthly in accordance with the priority of payments set forth in the Indenture. The servicing fee rate has not been modified since the Original Closing Date and will apply equally to the Tap Pool receivables.
Back-Up Servicer: Redwood Servicing Solutions LLC, a Delaware limited liability company with its principal office at 500 West Monroe Street, Suite 3600, Chicago, Illinois 60661, serves as Back-Up Servicer under the Back-Up Servicing Agreement dated as of January 29, 2024. The primary contact at Redwood Servicing Solutions LLC is Patricia Hahn, Senior Vice President, Backup Servicing. Redwood Servicing Solutions LLC has maintained its systems and data-mapping capabilities in a state of readiness to assume the servicing function in the event of a Servicer Termination Event, and has received monthly data tapes from BRB since the Original Closing Date.
Back-Up Servicing Fee: The back-up servicing fee is $7,500 per month ($90,000 per annum), payable from the collection account in accordance with the priority of payments.
No changes to the servicing arrangements, servicing fee, back-up servicing arrangements, or back-up servicing fee are proposed in connection with the Tap Issuance. BRB continues to maintain the operational infrastructure, staffing, and technology systems necessary to service the expanded pool on a going-forward basis.
7. Transaction Parties
For ease of reference, the following table summarizes the key parties to the Series 2024-A transaction and their respective roles:
All parties listed above have been engaged in their respective capacities since the Original Closing Date (except the Underwriter, which has been engaged specifically for the Tap Issuance). No changes to any of the above-listed parties or their respective roles are anticipated in connection with the Tap Issuance.
8. Rating Agency Fee
BRB acknowledges the combined rating agency fee of $75,000 (the "Rating Fee") for the tap surveillance and new-issue rating confirmation work to be performed by each of Pinnacle and Crestline in connection with the Tap Issuance. The Rating Fee covers the analytical review, credit committee presentation, and issuance of the written confirmation letters described in Section 10 below, as well as ongoing surveillance of the Trust's performance following the Tap Issuance through the legal final maturity of the Class A-2 Notes.
Payment of the Rating Fee will be made by BRB upon delivery of the confirmation letters by each Rating Agency, in accordance with the standard invoicing procedures of each Rating Agency. BRB will remit payment by wire transfer to the accounts designated by each of Pinnacle and Crestline in their respective fee invoices.
9. Enclosed Materials
For purposes of the Rating Agencies' review and analysis of the proposed Tap Issuance, the following documents and materials are enclosed with this letter:
Exhibit A: Summary Term Sheet for the proposed Tap Issuance, setting forth the key economic, structural, and legal terms of the Tap Notes in a format substantially consistent with the term sheet distributed in connection with the original Series 2024-A issuance.
Exhibit B: Draft of Supplemental Indenture No. 2 to the Indenture dated January 29, 2024, reflecting the terms of the Tap Issuance, the increase in the aggregate principal amount of the Class A-2 Notes, and the corresponding adjustments to the overcollateralization target and reserve account requirements.
Exhibit C: Tap Pool Stratification Data, including detailed distribution tables by equipment type, geographic location (by state), obligor concentration (top 10, top 20, and top 50 obligors), seasoning (in monthly buckets), remaining term (in monthly buckets), original term (in monthly buckets), implicit lease rate (in 50 basis point buckets), and FICO equivalent credit score (where available).
Exhibit D: Post-Tap Credit Enhancement Summary, including a detailed presentation of the overcollateralization target (4.50%), reserve account requirement (1.00%), excess spread calculation, and a comparison of the pre-tap and post-tap credit enhancement levels.
Additional materials, including execution copies of the SSA Amendment, opinions of counsel, officer's certificates, and accountant's agreed-upon procedures letters, will be made available upon request and in any event will be delivered to the Rating Agencies on or prior to the settlement date of the Tap Issuance. BRB's structured finance team is available to arrange a call or in-person meeting to walk through the enclosed materials at the convenience of the Rating Agencies.
10. Requested Confirmation
BRB respectfully requests that each Rating Agency deliver a written confirmation (which may be in letter or email form) addressed to each of BRB, the Trust, Ashford Capital Markets LLC (as Underwriter), and Meridian Fiduciary Services, Inc. (as Indenture Trustee) confirming the following:
(i) Pinnacle: Pinnacle confirms that the issuance of the Tap Notes, on the terms described in this letter and the enclosed materials, will not result in a downgrade or withdrawal of the AAA(sf) rating currently assigned to the Class A-2 Notes (CUSIP 07839LAB3); and
(ii) Crestline: Crestline confirms that the issuance of the Tap Notes, on the terms described in this letter and the enclosed materials, will not result in a downgrade or withdrawal of the Aaa(sf) rating currently assigned to the Class A-2 Notes (CUSIP 07839LAB3).
Each confirmation should expressly state that it is being delivered in connection with the proposed Tap Issuance and should reference the CUSIP and ISIN of the Class A-2 Notes. BRB understands that the confirmations will be subject to the Rating Agencies' standard assumptions, limitations, and disclaimers, including without limitation the proviso that ratings are subject to ongoing surveillance and may be revised at any time.
Confirmations are requested to be delivered on or prior to the anticipated pricing date of April 19, 2024. Receipt of each confirmation is a condition precedent to closing under the Underwriting Agreement between the Trust and Ashford Capital Markets LLC. BRB acknowledges that the Rating Agencies may require additional time to complete their analysis and will endeavor to provide all requested supplemental information in a timely manner to facilitate delivery of confirmations by the requested date.
BRB and its advisors are available to discuss the proposed transaction, respond to any questions, or provide supplemental information at your convenience. We are prepared to accommodate calls, video conferences, or in-person meetings at any time during the review period.
11. Contact Information
For questions regarding this request or to obtain additional information concerning the proposed Tap Issuance, the Tap Pool, or the Trust, please contact the following individuals:
Priya Ranganathan Senior Vice President, Structured Finance Belmont Ridge Bank, National Association 600 Lexington Avenue, 32nd Floor New York, NY 10022 Telephone: (212) 547-3800
Email: pranganathan@belmontridgebank.com
Derek Ashworth Treasurer & Head of Capital Markets Belmont Ridge Bank, National Association 600 Lexington Avenue, 32nd Floor New York, NY 10022 Telephone: (212) 547-3825
Email: dashworth@belmontridgebank.com
Calderwood & Harkness LLP Carlos Espinoza, Lead Associate Telephone: (212) 558-4200
Email: cespinoza@calderwoodharkness.com
Francesca Morano, Partner Telephone: (212) 558-4100
Email: fmorano@calderwoodharkness.com
We appreciate your prompt attention to this matter and look forward to receiving your confirmation at the earliest practicable date. BRB values its long-standing relationship with each of Pinnacle and Crestline and is committed to providing full transparency and cooperation throughout the review process.
Sincerely,
BELMONT RIDGE BANK, NATIONAL ASSOCIATION
By: ________
Name: Priya Ranganathan
Title: Senior Vice President, Structured Finance
Belmont Ridge Bank, National Association 600 Lexington Avenue, 32nd Floor New York, NY 10022
cc:
Margaret Yuen, Chief Financial Officer, Belmont Ridge Bank, N.A. Derek Ashworth, Treasurer & Head of Capital Markets, Belmont Ridge Bank, N.A. Francesca Morano, Partner, Calderwood & Harkness LLP Carlos Espinoza, Associate, Calderwood & Harkness LLP Julian Voss, Managing Director, Ashford Capital Markets LLC Nina Hargrove, Partner, Hargrove, Sato & Chen LLP
Enclosures:
Exhibit A — Summary Term Sheet for the Proposed Tap Issuance Exhibit B — Draft Supplemental Indenture No. 2 to the Indenture dated January 29, 2024 Exhibit C — Tap Pool Stratification Data Exhibit D — Post-Tap Credit Enhancement Summary
| Class | Original Principal Amount | Type | Rate | Ratings (Pinnacle / Crestline) |
| Class A-1 Notes | $130,000,000 | Money-market tranche | Floating rate (SOFR + spread) | A-1+(sf) / P-1(sf) |
| Class A-2 Notes | $220,000,000 | Term tranche | Fixed rate (5.78% per annum) | AAA(sf) / Aaa(sf) |
| Total Series 2024-A | $350,000,000 | |||
| Term | Detail | |||
| Aggregate principal amount | $48,000,000 | |||
| Coupon | 5.78% per annum, fixed (equal to the coupon on the original Class A-2 Notes) | |||
| Benchmark reference | SOFR swap rate of 3.68% plus 210 basis points | |||
| Day count convention | 30/360 | |||
| Issue price | 100.125% of par | |||
| Gross proceeds | $48,060,000 | |||
| Yield to weighted-average life | Approximately 5.74% | |||
| Payment frequency | Monthly, on the 15th of each calendar month | |||
| Record date | Last Business Day of the preceding calendar month | |||
| First payment date (anticipated) | June 15, 2024 | |||
| Legal final maturity | January 15, 2029 | |||
| Minimum denomination | $1,000 and integral multiples of $1,000 in excess thereof | |||
| Governing law | State of New York | |||
| Form | Book-entry only, through DTC | |||
| Characteristic | Value | |||
| Aggregate discounted receivable balance | $49,344,000 | |||
| Number of lease contracts | 1,247 | |||
| Average discounted balance per lease | $39,570.17 | |||
| Weighted-average original term | 42.6 months | |||
| Weighted-average remaining term | 36.8 months |
| Weighted-average seasoning | 5.8 months | |
| Weighted-average implicit lease rate | 7.14% | |
| Top 10 obligors concentration | 4.3% of pool balance | |
| Equipment Type | Percentage of Tap Pool Balance | |
| IT / Networking | 34.2% | |
| Medical Devices | 22.7% | |
| Office / Copier | 18.1% | |
| Light Industrial | 14.6% | |
| Other | 10.4% | |
| Total | 100.0% | |
| State | Percentage of Tap Pool Balance | |
| New York | 14.8% | |
| California | 12.1% | |
| Texas | 9.6% | |
| Florida | 7.3% | |
| Illinois | 5.9% | |
| All other states | Less than 5.0% each | |
| Role | Party | Address / Details |
| Issuer | Belmont Ridge Equipment Trust 2024-A | Delaware statutory trust; EIN 88-4231957 |
| Owner Trustee | Keyline Trust Company, National Association | 2100 Market Street, Suite 800, Philadelphia, PA 19103 |
| Indenture Trustee / Paying Agent / Calculation Agent / Note Registrar | Meridian Fiduciary Services, Inc. | 101 Barclay Street, 12th Floor, New York, NY 10007 |
| Originator / Servicer | Belmont Ridge Bank, National Association | 600 Lexington Avenue, 32nd Floor, New York, NY 10022 |
| Back-Up Servicer | Redwood Servicing Solutions LLC | 500 West Monroe Street, Suite 3600, Chicago, IL 60661 |
| Lead Underwriter (Tap Issuance) | Ashford Capital Markets LLC | CRD No. 284756 |
| Issuer's Counsel | Calderwood & Harkness LLP | New York, NY |
| Issuer's Delaware Counsel | Whitfield & Donahue LLP | Wilmington, DE |
| Underwriter's Counsel | Hargrove, Sato & Chen LLP | New York, NY |
| Independent Accountants | Velthorn Accounting Group LLP | New York, NY |
| Registered Agent (Trust) | Capitol Trust Services LLC | 1209 Orange Street, Wilmington, DE 19801 |