Rating Action: Moody’s assigns definitive ratings to Element’s new series of fleet lease-backed notesGlobal Credit Research – 23 Mar 2021New York, March 23, 2021 — Moody’s Investors Service (Moody’s) has assigned definitive ratings of Aaa (sf) to the class A, Aa2 (sf) to the class B, A2 (sf) to the class C, and Baa2 (sf) to the class D, series 2021-1 asset backed notes issued by Chesapeake Funding II LLC (CF II), a bankruptcy-remote special purpose entity and an indirect wholly-owned subsidiary of Element Fleet Management Corp. (Element). Element is the largest automotive fleet manager in the world, providing fleet services and solutions across North America, Australia and New Zealand. Element Fleet Corporation (EFC), an indirect wholly-owned subsidiary of Element is the servicer of the collateral backing the transaction.The collateral backing the notes primarily consists of special units of beneficial interests (SUBIs) in a pool of revolving fleet leases and related vehicles, as well as fleet loans, originated and serviced by EFC. The weighted average credit quality of the top 200 lessees in the pool, which make up about 86% of the pool balance, is Ba3 when we assume B2 for all non-rated lessees.In addition, Moody’s announced today that the issuance of the series 2021-1 notes would not, in and of itself and as of this time, result in a reduction or withdrawal of the ratings currently assigned to any outstanding series of notes issued by the issuer.The complete rating actions are as follows:Issuer: Chesapeake Funding II LLC, Series 2021-1Series 2021-1 Fixed Rate Asset Backed Notes, Class A-1, Definitive Rating Assigned Aaa (sf)Series 2021-1 Floating Rate Asset Backed Notes, Class A-2, Definitive Rating Assigned Aaa (sf)Series 2021-1 Fixed Rate Asset Backed Notes, Class B, Definitive Rating Assigned Aa2 (sf)Series 2021-1 Fixed Rate Asset Backed Notes, Class C, Definitive Rating Assigned A2 (sf)Series 2021-1 Fixed Rate Asset Backed Notes, Class D, Definitive Rating Assigned Baa2 (sf)RATINGS RATIONALEThe definitive ratings of the notes are based on (1) the strong credit quality of the underlying collateral, (2) the strong historical performance of EFC’s managed portfolio and the CF II master trust, (3) the pool’s limited residual value risk, owing to the negligible portion of closed-end leases, (4) the interest rate hedging arrangements that mitigate fixed-to-floating interest rate risk, (5) the strength of the transaction structure, including the classes’ sequential payments and the amount of credit enhancement supporting each class of notes, and (6) the legal aspects of the transaction.Key credit strengths of the transaction include the near-zero historical net loss rates of EFC’s managed portfolio, the strong credit quality of the underlying collateral pool, the pool’s limited residual value risk, and the experience of Element as the transaction sponsor and EFC as the originator and servicer of the collateral. Key credit challenges include a difficult operating environment owing to the coronavirus pandemic, an increase in delinquency rates since early 2019 of EFC’s managed portfolio, although the rate has declined considerably between September and December 2020, and an unrated sponsor and servicer.The series 2021-1 notes benefit from hard credit enhancement of 11.25% for the class A notes, 8.50% for the class B notes, 6.25% for the class C notes and 4.10% for the class D notes, all as a percentage of the allocable share of the total assets. Unlike prior transactions, the CF II series 2021-1 transaction has no revolving period. However, new assets can be added to the master trust via the variable funding note and excess collections.The coronavirus pandemic has had a significant impact on economic activity. Although global economies have shown a remarkable degree of resilience to date and are returning to growth, the uneven effects on individual businesses, sectors and regions will continue throughout 2021 and will endure as a challenge to the world’s economies well beyond the end of the year. While persistent virus fears remain the main risk for a recovery in demand, the economy will recover faster if vaccines and further fiscal and monetary policy responses bring forward a normalization of activity. As a result, there is a heightened degree of uncertainty around our forecasts. Our analysis has considered the effect on the performance of corporate assets from a gradual and unbalanced recovery in US economic activity.We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.PRINCIPAL METHODOLOGY:The principal methodology used in these ratings was “Fleet Lease Securitizations Methodology” published in April 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1221168. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Factors that would lead to an upgrade or downgrade of the ratings:UpCredit protection greater than what Moody’s considers necessary to protect investors against then-current expectations of loss could lead to an upgrade of the ratings. Moody’s then-current expectations of loss could be better than its original expectations because of an improvement in the creditworthiness of the underlying obligors or lower than expected depreciation in the value of the vehicles or equipment that secure the obligors’ promise of payment. As the primary drivers of credit performance, positive changes in the US macro economy and the performance of the sectors in which the obligors operate could also positively affect the ratings.DownCredit protection insufficient to protect investors against then-current expectations of loss could lead to a downgrade of the ratings. Moody’s then-current expectations of loss could be worse than its original expectations because of deterioration in the creditworthiness of the underlying obligors or greater than expected deterioration in the value of the vehicles or equipment that secure the obligors’ promise of payment. Other reasons for worse-than-expected performance could include poor servicing or error on the part of transaction parties. As the primary drivers of credit performance, negative changes in the US macro economy and the performance of the sectors in which the obligors operate could also negatively affect the ratings.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1272937.The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody’s evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.Moody’s quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Corina Teodora Bot Associate Lead Analyst Structured Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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