CLI Funding VI LLC (Series 2020-1)

Presale:

CLI Funding VI LLC (Series 2020-1)August 24, 2020

Preliminary Ratings

Class Preliminary rating Preliminary amount (mil. $)

A A (sf) 285.80

B BBB (sf) 14.20

Note: This presale report is based on information as of Aug. 24, 2020. The ratings shown are preliminary. Subsequent information may result inthe assignment of final ratings that differ from the preliminary ratings. Accordingly, the preliminary ratings should not be construed as evidenceof final ratings. This report does not constitute a recommendation to buy, hold, or sell securities.

Profile

Expected closing date Sept. 18, 2020.

Legal final payment date Sept. 18, 2045.

Collateral CLI Funding VI LLC is a container securitization backed by a $1,245,419,067 net book valueportfolio containing 274,349 containers. This collateral is shared with the 2017-1, 2018-1, and2019-1 series notes previously issued by CLI Funding VI LLC. CLI Funding VI LLC has the right tonet operating income from the portfolio and any net residual cash flows from the sale ofcontainers.

Structuring agent BofA Securities Inc.

Issuer CLI Funding VI LLC.

Seller and Manager Container Leasing International LLC, doing business as SeaCube Containers LLC.

Indenture trustee andmanager transferfacilitator

U.S. Bank National Association.

Rationale

The preliminary ratings assigned to CLI Funding VI LLC's (the issuer) $300 million fixed-rateasset-backed notes series 2020-1 reflect our view of:

- The likelihood that timely interest and ultimate principal payments will be made on or beforethe legal final maturity date;

- The initial and future lessees' estimated credit quality;

Presale:

CLI Funding VI LLC (Series 2020-1)August 24, 2020

PRIMARY CREDIT ANALYST

Steven Margetis

New York

(1) 212-438-8091

[email protected]

SECONDARY CONTACTS

Jie Liang, CFA

New York

(1) 212-438-8654

[email protected]

Brian Kearon

New York

+ 1 (212) 438 8156

[email protected]

CORPORATE & GOVERNMENT CREDITANALYST

Betsy R Snyder, CFA

New York

(1) 212-438-7811

[email protected]

ANALYTICAL MANAGER

Ildiko Szilank

New York

(1) 212-438-2614

[email protected]

www.standardandpoors.com August 24, 2020 1

© S&P Global Ratings. All rights reserved. No reprint or dissemination without S&P Global Ratings' permission. See Terms of Use/Disclaimeron the last page.

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mailto: [email protected]










- The transaction's structure;

- The portfolio characteristics, including the asset quality and lease terms;

- Certain compliance tests, concentration limitations, and early amortization events included inthe transaction documents;

- The presence of a reserve account that covers the series 2020-1 notes' nine months of interest;and

- The manager's experience in managing the container portfolio.

Transaction Strengths

We consider the following to be transaction strengths:

- The container leasing market's resiliency and stability despite the macroeconomic disruptioncaused by the COVID-19 pandemic. Reduced levels of capital spending continues to support arelatively stable supply.

- The portfolio's high concentration of refrigerated containers (64.32% of net book value [NBV]),which have historically experienced more stable demand and higher utilization rates.

- The performance tests, such as the asset base compliance, concentration limitations, and earlyamortization event tests. Concentration limitations include single lessee (25% of the portfolio,with an exception of up to 35% for Mediterranean Shipping Co. [MSC]), top three lessees (60%),direct finance leases (DFLs; 40%), top three lessees of DFLs (30%), gensets (10%), specials(25%), and non-monthly rental payments (10%). Early amortization events include a managerdefault; the weighted average equipment age exceeding 9.0 years; if after the seventh paymentdate, the interest coverage ratio for series 2020-1 is less than 2.0x for four consecutivepayment dates; and the outstanding notes' aggregate amount exceeding the asset base for 30days. If any of the concentration limitations are breached, the excess concentrations will causethe required overcollateralization percentage to increase by the amount of the excessconcentration percentage.

- Approximately 95.48% of CLI Funding VI LLC's portfolio represents long-term leases and DFLs,which are shielded from rate reductions during a downturn.

- CLI Funding VI LLC portfolio's low writeoffs and high recovery rates.

- The interest reserve account, which equals nine months of note interest due.

- Leases where the lessee is subject to an insolvency proceeding and does not become currenton its lease obligations within 90 days of the commencement of such insolvency proceeding(defaulted leases) are excluded from the asset-base calculation.

Transaction Weaknesses

We consider the following to be transaction weaknesses:

- Global, regional, or local economic downturns could reduce the issuer's revenue becauseleased containers are deployed worldwide.

- Approximately 44.97% of the series 2020-1 pool is held by the three largest customers, whoseperformances may affect the issuer's revenue receipts.



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Presale: CLI Funding VI LLC (Series 2020-1)

- The default of a customer with containers located in certain countries could make iteconomically or legally difficult to recover the container assets.

- The DFLs (30.74% by NBV) in the transaction may be "re-characterized" as secured debt if thelessee files for bankruptcy. Because lessors and secured lenders have different rights andremedies as creditors in a bankruptcy, a debtor may seek to re-characterize a lease to takeadvantage of these distinctions.

- About 12.36% of the portfolio (by NBV) consists of leases with damage protection plan (DPP)coverage. Such coverage is common in other container lease portfolios. However, ContainerLeasing International LLC's (CLI's) reported initial per diem rates (PDRs) include the DPPpremiums. This differs from the reporting practice of other lessors. CLI explains that thecompany sets aside a repair reserve, and the management fee it charges the transactionincludes container repair expenses. However, there is still residual value risk on containerscoming back from the last lease and ready for sale in as-is condition.

- The issuer may rely on CLI (doing business as SeaCube Containers LLC) to manage thetransaction's inventory, billing, and collection of rental payments.

- The transaction documents allow for sales of container assets; as long as the transaction is incompliance with certain tests, proceeds from such sales may not have to be used to pay downthe notes, but will be paid out as income to the transaction's residual class, which issubordinate to the rated notes.

Mitigants To Transaction Weaknesses

We believe the following factors partly mitigate the transaction's weaknesses:

- The stress scenarios we apply to the utilization rates can typically incorporate 60% of lesseedefaults during the lease term for a three-year operating lease that is subject to six months ofdowntime in between lessees.

- We incorporate the stress scenarios we apply to the cash flow modeling for fleet utilization,lease rates, and operating expenses through two sector downturns--the first is four years longand the other is three years long--over the fleet's life.

- We model the loss of container assets following lessee defaults in our stress scenarios.

- To address the inclusion of DPP premiums in the reported PDRs, we performed a sensitivity testwhere we reduced the reported PDRs by between 10 cents and 40 cents on containers with DPPcoverage in their initial leases and found that the rated notes still have sufficient cushion topass the 'A' and 'BBB' rating runs.

- The transaction documents include manager events of default, based on CLI's financialperformance, whereby if a manager event of default is triggered, the transition manager willassist in locating a suitable successor manager for this transaction. The transaction also has aliquidity account to cover nine months of note interest throughout the transaction's life andwhile finding a replacement manager.

- Furthermore, the manager, the issuer, the indenture trustee, and U.S. Bank N.A. as thetransition manager, have entered into a manager transition agreement to mitigate the risk of aninterruption in services provided by the manager and to facilitate the orderly transition to asuccessor manager, under which the transition manager has agreed to provide certainessential services until a new successor manager is located.



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- Based on our findings that indicate no evidence of attempts by shipping lines to re-characterizeDFLs as secured debt, we use recovery delay assumptions consistent with other businessloan-backed securitizations. In those cases, for 'A' category ratings, we assume a 24-monthdelay. While the transaction documents allow for sales of container assets, additional cashflow analysis shows that, even if overcollateralization levels were kept at or close to theminimum required level, principal and interest on the notes would still likely be paid when due.However, the likelihood that we lower our ratings might increase. If additional container saleswere sufficient to reduce the asset base to the minimum required level, our cash flow analysisshows that the notes may experience losses under the stress scenarios corresponding to thepreliminary ratings assigned. The manager's performance history for this securitization andother securitizations does not include excessive asset sales nor is there a pattern of keepingovercollateralization levels at or close to the minimum required level. We expect that, underbase-case conditions and absent any additional issuance from the master trust, thetransaction leverage would gradually decline over time.

Historical Industry Characteristics: Sector Outlook

Demand for marine cargo containers is primarily based on the level of world trade, whichcorrelates with economic cycles. We believe other factors affecting demand include the needs ofshipping lines (marine cargo containers' major customers), the available supply and cost ofequipment, and the availability of capital to purchase or lease the needed equipment. Historically,the leased container fleet has accounted for approximately 45%-50% of the total fleet, a trend weexpect to continue or perhaps even grow as shipping lines spend their capital on ships.

In 2016, the industry was negatively affected by the liquidation of Hanjin, a large containershipping line. From late 2016 through mid-2019, industry fundamentals improved. Demandincreased, inventory declined because fewer containers had been built to offset the continuingimprovement in global economies (e.g., the U.S.), and new container prices had increased. Sincethen, demand and utilization has declined somewhat along with weaker global economies. Yet,utilization declined only modestly due to the long-term nature (at least five years) of the leasesthat cover around 75% of the lease fleet. Lessors have offset weaker demand by adding fewer newcontainers to their fleets, which has maintained utilization rates in the mid- to high-90% range. Ifmarine cargo container lessors see weaker than expected demand (for example, due to globaltrade tariffs or weaker economies), they can reduce capital spending fairly quickly because thelead times to order equipment tend to be only one to three months. We believe that this, along withthe multi-year leases that cover approximately 75% of the marine cargo container lessors' fleets,allows the industry to manage its utilization levels even in periods of weak demand.

Through mid-2019, the sector had picked up after hitting the bottom of the cycle in early 2017. In2018, lease rates and prices for both new and used dry containers continued the recovery trend of2017, although at a slower pace. In 2019, marine cargo container prices declined and performancewas mixed for leases that entered ABS portfolios in various years. We've also observed thatchanges in lease rates varied for different container types, which was largely driven by subsectorfundamentals (see "Guidance: Global Container Lease-Backed ABS Methodology AndAssumptions," published Feb. 21, 2018).

More recently, as a result of the COVID-19 pandemic, container trade volumes have declined andare expected to decline throughout 2020. According to World Trade Organization (WTO) statistics,merchandise trade declined by 3% year over year in the first quarter. The WTO's estimates for thesecond quarter indicate a year over year decline of around 18.5%. However, the WTO expects arebound in 2021, based upon countries' policy decisions that may have been instrumental in



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limiting the negative impact on gross domestic product and trade. The speed and level of therebound will depend on the success of COVID-19 pandemic containment efforts. Eachgovernment's monetary, fiscal, and trade policy choices will also play a significant role indetermining the pace of recovery.

As the demand for marine cargo containers is primarily based on the level of world trade, we wouldexpect a decline in container usage to continue for the rest of 2020. However, utilization rates, aswell as their lease rates, may not be as negatively affected in the near term because there iscurrently a shortage of available marine cargo containers in the industry, with lower rates ofproduction and many marine cargo containers parked but inaccessible at storage depots.

During the first quarter and part of the second quarter of 2020, stay-at-home orders instituted inChina and other Asian countries caused marine cargo container dislocations in Asian ports.Furthermore, the lack of demand in the countries where the merchandise is delivered such as theU.S. and other European countries caused congestion in their respective ports of entry. As thesupply chain became under stress, costs, timing, and per diem rates associated with marine cargocontainer transports also became temporarily under stress. As world trade resumes its upwardtrajectory, as already evidenced beginning in mid-2020, and the supply chain becomes lessdisrupted, we expect costs, timing, and per diem rates to return to normal conditions over time,aided by a general marine cargo container shortage initially but mostly depending on the speedand level of increase in economic activity.

Chart 1

Transaction Structure

The issuer is intended to be a bankruptcy-remote LLC organized under Delaware law. The issuer'sprimary assets are the containers acquired by the issuer from CLI (see chart 2 for the transaction



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structure)

Please see chart 2 below for the transaction structure.

Chart 2

Shared collateral

Additional container units will be purchased by the issuer using the proceeds from the issuance ofthe series 2020-1 notes. These units, together with the existing collateral portfolio of the issuer,will be held by the trustee for the benefit of the series 2020-1 bondholders and the alreadyexisting bondholders. Available collections will be allocated to each series based on the provisionsof the Indenture. Similar provisions would apply to the issuance of additional series in the future.At the time of the series 2020-1 notes' issuance, it is expected that notes from the issuer's series2017-1, 2018-1, and 2019-1 will be outstanding.



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Related Corporate Entities

CLI, the manager, was formed in 1993 and currently conducts business under the name "SeaCubeContainers LLC." CLI is one of the world's larger container leasing companies based on totalassets owned or managed, but it has a larger market share in refrigerated containers (reefers).According to industry statistics, as of March 31, 2020, CLI is one of the 10-largest marine cargocontainer lessors based on cost-equivalent units (CEUs), with a 7% market share. The largestcontainer lessors are Triton Container International Ltd., Textainer Marine Containers Ltd., FlorensContainer Services, Seaco SRL, and Seacube.

As of June 30, 2020, CLI owned or managed a fleet comprised of 727,164 units, representing1,183,925 20-ft. equivalent units (TEUs) of containers and generator sets. Based on the NBV, as ofJune 30, 2020, approximately 90% of CLI's owned fleet was leased through long-term leases andDFLs and 62% were reefers. DFLs provide the customer with a purchase option when the leaseterm expires. The average age of CLI's fleet as of June 30, 2020, is 5.5 years. Approximately 32% ofCLI's fleet (by NBV) is dry containers, the most widely used type of equipment; 62% is reefers; and4% is gensets.

Portfolio Characteristics

Table 1

Comparison Among Container Transactions

CLI Funding VILLC (Series

2020-1)

CLI Funding VILLC (Series

2019-1)

CLI FundingVI LLC

(Series2018-1)

CLI FundingVI LLC

(Series2017-1)

TIF FundingII LLC

(Series2020-1)

TritonContainer

Finance VILLC (Series

2018-2)

TritonContainer


2018-1)

TritonContainer


2017-2)

TritonContainer


2017-1)

TextainerMarine

ContainersVII (Series

2020-1)

Total NBV ($) 1,245,419,067 1,049,482,141 811,658,873 416,242,922 370,053,183 1,697,642,281 1,150,310,337 903,596,389 376,345,338 375,572,194

Total units 274,349 244,957 171,547 66,526 99,773 429,829 294,947 227,341 97,207 134,029

Weighted-averageage (year, by NBV)

3.54(ii) 3.04 2.12 2.59 1.51 2.81 2.50 1.98 1.70 5.75

Weighted-averageper diem rate (byunit) ($)

1.88(ii) 1.79 1.93 2.57 1.17 1.50 1.48 1.45 1.39 1.06

Lease type (% of NBV)

Long-term 64.74 71.78 66.62 79.27 95.57 88.31 87.70 83.40 91.30 62.91

Direct financeleases

30.74 24.57 30.66 15.22 1.00 N/A N/A N/A 0.00 26.07

Master / spot 3.06 3.59 2.51 4.72 3.43 8.21 10.97 13.50 4.80 6.05

Off-hire 1.47 0.05 0.20 0.79 0.00 3.49 1.33 3.20 3.90 4.98

Container type (% of NBV)

Reefer 64.32 36.29 61.32 75.03 25.99 37.38 35.85 37.90 39.50 33.01

Dry 29.29 59.12 34.57 18.94 70.11 61.07 62.75 60.60 58.40 63.80

Special(includinggensets)

6.38 4.59 4.12 6.03 3.21 1.55 1.41 1.50 2.20 3.19

Tank 0.00 0.00 0.00 0.00 0.69 0.00 0.00 0.00 0.00 0.00



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Table 1

Comparison Among Container Transactions (cont.)

Senior advancerate (%)

81.0 81.0 81.0 80.0 79.0 79.0 79.0 79.0 79.0 66.0

Utilization B/E (%) 6 (class A)/21(class B)

4 (class A)/17(class B)

10 (classA)/23 (class

B)

14 (classA)/less than13 (class B)


B)




B)


B)


Re-lease rate B/E(%)(i)




B)

11 (classA)/less than

8 (class B)


B)




B)

15 (classA)/24(class

B)


S&P GlobalRating's creditrating

Preliminary A(sf)/BBB (sf)

(class A/classB)

A (sf)/BBB (sf)(class A/class

B)

A (sf)/BBB(sf) (class

A/class B)


A/class B)

PreliminaryA (sf)/BBB(sf) (class

A/class B)


B)


B)


A/class B)


A/class B)


A/class B)

Closing date Sept. 18, 2020 May 20, 2019 April 25,2018

May 31,2017

Aug. 26,2020

June 20, 2018 March 20,2018

Aug. 18,2017

June 15,2017

Aug. 20,2020

TextainerMarine

Containers VII(Series

2019-1)

CAL FundingIII Ltd. (Series

2018-2)

TextainerMarine

ContainersVII (Series

2018-1)

CALFunding III

Ltd. (Series2018-1)

TextainerMarine

ContainersV Ltd.

(Series2017-2)

CAL FundingIII Ltd. (Series

2017-1)

TextainerMarine

Containers VLtd. (Series

2017-1)

Global SCFinance IV

Ltd. (Series2017-1)

TALAdvantage

VI LLC(Series

2017-1)

Total NBV ($) 294,419,909 881,520,255 303,744,472 573,240,354 971,136,723 295,663,599 540,406,916 362,065,591 355,457,599

Total units 75,706 276,940 71,232 170,104 313,207 83,200 169,312 90,852 86,750

Weighted-averageage (year, by NBV)

2.10 2.11 1.52 2.36 4.87 2.56 5.50 2.80 4.13

Weighted-averageper diem rate (byunit) ($)

1.31 1.25 1.39 1.32 0.99 1.40 1.09 1.36 1.56

Lease type (% of NBV)

Long-term 92.89 69.64 93.08 80.29 88.40 87.29 83.50 87.50 86.40

Direct financeleases

5.59 27.79 4.42 17.76 2.04 12.19 1.00 2.70 4.93

Master 1.20 2.50 2.41 1.78 0.81 0.52 5.20 7.10 3.60

Off-hire 0.32 0.07 0.08 0.17 4.35 0.00 8.30 2.80 5.10

Container type (% of NBV)

Dry 46.69 82.51 58.40 70.54 65.76 64.36 61.50 46.70 49.26

Reefer 43.82 11.02 40.84 18.44 31.29 28.83 37.10 33.10 36.74

Tank 8.64 0.00 0.00 0.00 0.00 0.00 0.00 15.40 9.00

Special(includinggensets)

0.86 6.48 0.76 11.98 2.94 6.80 1.40 4.90 4.97

Senior advancerate (%)

78.0 80.0 80.0 80.0 64.6 79.0 63.0 78.0 77.0

Utilization B/E (%) 1 (class A)/12(class B)



B)


B)




12 3



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Table 1

Comparison Among Container Transactions (cont.)

Re-lease rate B/E(%)(i)




B)


B)


7 (classA)/17(class B)


11 3

S&P GlobalRating's creditrating


B)


B)

A (sf)/BBB(sf)(class

A/class B)


A/class B)


A/class B)


B)


B)

A (sf) A (sf)

Closing date April 24, 2019 Sept. 19, 2018 Aug. 6, 2018 Feb. 28,2018

June 27,2017

June 28, 2017 May 17, 2017 April 25,2017

April 7, 2017

(i)The B/E rate reflects lease rate assumptions at closing. (ii)Excludes depot units. NBV--Net book value. B/E--Break-even. N/A--Not applicable.

Tables 2 through 5 detail the characteristics of the underlying collateral pool.

Portfolio distribution by equipment type and age

Table 2 shows a breakdown of the issuer's fleet by major equipment category as of June 30, 2020.

Table 2

Portfolio Distribution By Equipment Type And Age As Of June 30, 2020

Equipment type No. of units % of units NBV ($) % of NBV Weighted avg. age (years)

40-ft. HC reefer 62,033 22.61 747,953,067 60.06 2.83

40-ft. HC dry 94,008 34.27 232,960,018 18.71 5.09

20-ft. standard dry 91,556 33.37 113,901,031 9.15 5.09

Genset 6,094 2.22 71,781,501 5.76 1.93

20-ft. standard reefer 5,157 1.88 45,648,153 3.67 3.96

40-ft. standard dry 11,355 4.14 17,978,538 1.44 7.71

Dry special 3,554 1.30 7,716,493 0.62 3.44

40-ft. standard reefer 592 0.22 7,480,266 0.60 5.34

Total/weighted avg. 274,349 100.00 1,245,419,067 100.00 3.54

NBV--Net book value. HC--High cube.

Portfolio distribution by contract type

Table 3 details the breakdown of the pool's issuer containers by lease type as of June 30, 2020.

Table 3

Portfolio Distribution By Lease Type

Lease type NBV ($) % of NBV

Term 806,287,045 64.74

Capital 382,790,263 30.74

MLA 38,070,542 3.06



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Table 3

Portfolio Distribution By LeaseType (cont.)

Lease type NBV ($) % of NBV

Off-hire 18,271,218 1.47

Total 1,245,419,067 100.00

NBV--Net book value. MLA--Master lease agreement.

Portfolio distribution by customer

Table 4 details the issuer's expected lessee exposure by NBV for the pool of containers as of June30, 2020.

Table 4

Portfolio Distribution By Customer

Customer No. of units % of units NBV ($) % of NBV

1 40,327 14.70 307,645,474 24.70

2 13,107 4.78 134,497,160 10.80

3 15,903 5.80 117,913,874 9.47

4 17,035 6.21 73,682,462 5.92

5 5,136 1.87 65,882,162 5.29

6 26,407 9.63 65,311,258 5.24

7 16,137 5.88 59,280,773 4.76

8 9,794 3.57 34,440,364 2.77

9 6,436 2.35 32,898,152 2.64

10 2,823 1.03 29,696,171 2.38

11 19,178 6.99 18,340,468 1.47

12 4,794 1.75 18,271,218 1.47

13 1,300 0.47 14,937,128 1.20

14 3,958 1.44 14,594,798 1.17

15 10,644 3.88 13,867,022 1.11

16 1,198 0.44 13,842,407 1.11

17 2,261 0.82 13,736,610 1.10

18 926 0.34 12,907,957 1.04

19 10,476 3.82 12,210,194 0.98

20 1,014 0.37 11,462,232 0.92

Other 65,495 23.87 180,001,184 14.45

Total 274,349 100.00 1,245,419,067 100.00

NBV--Net book value.



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Portfolio distribution by remaining term to maturity of the fleet term leases

Table 5 shows the expected portfolio distribution of leases by expiration year as of June 30, 2020.

Table 5

Distribution Of The Collateral By Lease Expiration Year

Lease expiration year NBV ($) % of NBV

2020 57,016,944 4.58

2021 74,116,864 5.95

2022 151,579,904 12.17

2023 283,065,932 22.73

2024 78,321,104 6.29

2025 108,293,601 8.70

2026 48,867,105 3.92

2027 76,787,681 6.17

2028 81,721,237 6.56

2029 10,766,656 0.86

2030 17,868,714 1.43

2031 6,995,616 0.56

2032 37,557,197 3.02

2033 86,151,566 6.92

Expired 18,271,218 1.47

Total 108,037,729 8.67

NBV--Net book value.

Portfolio distribution by utilization and per diem rate

Table 6 shows the expected portfolio distribution of containers by utilization and per diem rate asof June 30, 2020.

Table 6

Portfolio Distribution By Per Diem Rates

Equipment type No. of units Weighted avg. per diem(i)

40-ft. HC reefer 62,033 4.36

40-ft. HC dry 94,008 1.08

20-ft. standard dry 91,556 0.78

Genset 6,094 4.95

20-ft. standard reefer 5,157 4.01

40-ft. standard dry 11,355 0.94

Dry special 3,554 2.20



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Table 6

Portfolio Distribution By Per Diem Rates (cont.)

Equipment type No. of units Weighted avg. per diem(i)

40-ft. standard reefer 592 6.00

Total/weighted avg. 274,349 1.88

(i)Weighted by units. HC--High cube.

Cash Flow Assumptions

The series 2020-1 transaction's cash flows depend on a number of key inputs--some contractual(e.g., lease rates) and some modeled based on historical performance, rating-dependenteconomic scenarios, and our expectations of the containers' life spans. We have incorporated ourstresses for each of those components into two sector downturns (one is four years long, and theother is three years long) during the fleet's life. The depth, length, and starting time of thedownturns are rating-dependent, which means that to assign a higher rating, we assume deeperand longer downturns within a shorter time frame. Our internal cash flow model includes inputassumptions, including:

- Fleet utilization;

- Lease rates (both long-term and per diem);

- Operating expenses (repair and storage);

- Container useful life and residual value;

- Lessee defaults;

- Container loss rate upon lessee defaults;

- DFL buyback rates; and

- DFL recharacterization risk for pools where this risk is significant.

We updated our operating and master lease rate assumptions on May 11, 2020, (see "GlobalContainer Lease-Backed ABS Methodology And Assumptions"). Under our stress assumptions forthe assigned preliminary ratings, we expect that the transaction will pay timely interest and fullprincipal by the final maturity date.

Cash Flow Results

'A' stress scenario and sensitivity analysis

We ran a number of stress tests in which we stressed cash flow through economic downturns,where both fleet utilization and re-leasing rates decrease while operating expenses increase. Themagnitude of these stresses is rating-dependent, as described in more detail in our criteria (see"Global Container Lease-Backed ABS Methodology And Assumptions," published June 5, 2015).We modeled all stresses assuming that all of the buyouts are taken. Under all stress scenarios,the bonds paid timely interest and ultimate principal according to the payment priority (see table7).



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Table 7

Series 2020-1 Cash Flow Results

Description Stress modeled Outcome

Roll stresscase-–classA

60% applied default rate. Utilization cut to between 50% and 75% during phase II of therecession period; the base-case lease rates reduced by 35% during phase II of the recession;and operating expenses increased by up to 15% during two sector downturns. 20% loss ofcontainers following lessee default. No operating expenses on DFLs. 90% ST utilization rate.20% final depreciated value for dry boxes and 10% for others. Residual haircut only happensduring downturns; haircut level follows the same pattern as reduced re-lease rate. 25% LTleases roll to LT leases.

Timelyinterest andultimateprincipalpaid.

Roll stresscase-–classB

50% applied default rate. Utilization cut to between 66% and 82% during phase II of therecession period; the base-case lease rates reduced by 25% during phase II of the recession;and operating expenses increased by up to 12.7% during two sector downturns. 16% loss ofcontainers following lessee default. No operating expenses on DFLs. 90% ST utilization rate.20% final depreciated value for dry boxes and 10% for others. Residual haircut only happensduring downturns; haircut level follows the same pattern as reduced re-lease rate. 50% LTleases roll to LT leases.


DFL stresscase-–classA

60% applied default rate. Utilization cut to between 50% and 75% during phase II of therecession period; the base-case lease rates reduced by 35% during phase II of the recession;and operating expenses increased by up to 15% during two sector downturns. 47% loss ofcontainers under DFLs, and 20% loss of containers under operating leases. No operatingexpenses on DFLs. 90% ST utilization rate. 20% final depreciated value for dry boxes; 10%for others. 70% LT leases roll to LT leases. Residual haircut only happens during downturns,and haircut level follows the same pattern as reduced re-lease rate. 24-month default delayfor FL containers.


DFL stresscase-–classB

50% applied default rate. Utilization cut to between 66% and 82% during phase II of therecession period; the base-case lease rates reduced by 35% during phase II of the recession;and operating expenses increased by up to 12.7% during two sector downturns. 42% loss ofcontainers under DFLs and 16% loss of containers under operating leases. No operatingexpenses on DFLs. 90% ST utilization rate. 20% final depreciated value for dry boxes; 10%for others. 80% LT leases roll to LT leases. Residual haircut only happens during downturns,and haircut level follows the same pattern as reduced re-lease rate. 18-month default delayfor FL containers.


DFL--Direct finance lease. ST—Short-term. LT--Long-term. FL--Finance lease.

Break-even analysis

We performed break-even tests, in addition to the stressed scenarios, to provide informationabout the transaction's cash flow to the key stress factors discussed above.

Table 8

Series 2020-1 Break-Even Results

Description Stress modeledMaximum haircut/cost increase wherenoteholders are paid in full

Utilization stress break-evenanalysis

Additional stress to the utilization rate atthe rating scenario.

6% haircut to utilization for class A and 21%for class B.

Re-lease rate break-evenanalysis

Additional stress to the re-lease rate atthe rating scenario.

3% haircut to re-lease rate for class A and 14%for class B.

Revenue reduction break-evenanalysis

Gross revenue collection haircut at therating scenario.

3% haircut to re-lease rate for class A and 9%for class B.

If we lower our re-lease rate or utilization assumptions in the future, this will tend to make our



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rating stress scenarios more severe. Transactions with lower break-even percentages willgenerally be more vulnerable to a downgrade, especially if the reduction in our assumed ratesexceeds the initially calculated break-even. In the most recent revision to our assumptions in May2020, we reduced lease rate assumptions for most of the container types in our ratedsecuritizations (see the Related Research list).

Asset sale sensitivity analysis

We performed an additional stress scenario assuming a discretionary sale of containers over twoyears, in amounts permitted by the transaction documents. We calculated a 12.65% reduction inNBV (in addition to the estimated 24-month depreciation based on the CLIF VI's depreciationpolicy), total original equipment cost, number of units, roll forward 24 months of scheduled notebalance, lease expiration, and repline age. The test indicated some shortfalls in ultimate principalpaid at both the 'A' and no shortfalls in interest or principal at the 'BBB' rating stress level.

Off-hire sensitivity analysis

We ran a stress scenario assuming the off-hire containers at closing would not be leased for threeyear before they are sold at depreciated value. The test indicated timely interest and ultimateprincipal paid at both the 'A' and 'BBB' rating stress level.

Payment Priority

On any payment date the trustee will distribute the available distribution amounts according tothe payment priority.

The collections for each series' account are payable according to the series collection allocationpercentage. This percentage takes into account each series' initial or current principal balance,the restricted cash amount, and the required O/C amount.

On any payment date before an early amortization event and an event of default, the trustee willdistribute the amounts according to the payment priority in table 9.

Table 9

Payment Waterfall

Priority Payment

1 To the indenture trustee (capped at $10,000 annually per series).

2 To the manager, unpaid management fees.

3 Reimburse manager advances.

4 Transition manager fees, capped at $48,000 annually per series, and transition costs.

5 Issuer expenses capped at $100,000 annually.

6 Class A note interest payments.

7 Class B note interest payments.

8 Fund the restricted cash account in a sufficient amount so that the total amount on deposit equals theinterest due on the notes for the next nine months.

9 Class A minimum principal amount.

10 Class A scheduled principal amounts.



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Table 9

Payment Waterfall (cont.)

Priority Payment

11 Class A supplemental principal payment.

12 Class B minimum principal amount.

13 Class B scheduled principal amounts.

14 Class B supplemental principal payment.

15 To other series per shared available funds.

16 Defaulted interest and indemnified amounts to class A and then class B.

17 Any amounts due to the transition manager and backup manager, pro rata.

18 Additional indenture trustee fees and indemnified amounts.

19 Manager indemnities and other payments.

20 Remaining proceeds distributed to the issuer.

(i)The transaction contains no letter of credit at closing. LOC--Letter of credit.

Payment priority after an early amortization event

If an early amortization event occurs, the trustee will distribute the available amounts accordingto the payment priority in table 10.

Table 10

Payment Waterfall After Amortization Event

Priority Payment

1 To the indenture trustee (capped at $10,000 annually) per each series.

2 To the manager, unpaid management fees.


4 Transition manager fee, capped at $48,000 annually per series, and transition costs.

5 Issuer expenses not to exceed $100,000 annually.


7 Class B Note interest payments.

8 Fund the restricted cash account in a sufficient amount so that the total amount on deposit isequal to the interest due on the notes for the next nine months.

9 Class A principal until reduced to zero.

10 Class B principal until reduced to zero.

11 Class A default interest, indemnities, costs, expenses, and other amounts due.

12 Class B default interest, indemnities, costs, expenses, and other amounts due.


14 Indenture trustee fee.


16 To other series per shared available funds.



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Table 10

Payment Waterfall After Amortization Event (cont.)

Priority Payment



Payment priority after an event of default

If an event of default occurs and the notes are being accelerated, collections will be distributedaccording to the payment priority outlined in table 11.

Table 11

Payment Waterfall After Event Of Default

Priority Payment

1 To the indenture trustee.

2 To the manager, any unpaid management fee.


4 Transition manager fees capped at $48,000 annually for each series.

5 Issuer expenses capped at $100,000 annually.


7 Class B note interest payments.

8 Class A principal until reduced to zero.

9 Class B principal until reduced to zero.

10 Class A default interest, indemnities, costs, expenses, and other amounts due.

11 Class B default interest, indemnities, costs, expenses, and other amounts due.



14 To other series in accordance with shared available funds.



Trust-level Events Of Default

Under the transaction documents, each of the following constitutes an event of default:

- A default in the performance or a breach of any issuer covenants that materially and adverselyaffects noteholder interests (subject to an applicable grace period).

- A breach of issuer or certain seller representation and warranties included in the transactiondocuments that materially and adversely affects noteholder interests (subject to a graceperiod).

- The issuer's involuntary or voluntary bankruptcy (subject to an applicable grace period).



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- The indenture trustee's failure to have a first-priority perfected security interest in a materialportion of the issuer's containers (subject to an applicable grace period).

- Any transaction document ceases to be the issuer's legal, valid, and binding obligation unless itexpires.

- A manager default and termination without an appointed replacement manager within 90 days.

- Any contribution failure to a retirement plan occurs that may give rise to a lien on the issuer'sasset.

- An asset base deficiency occurs and remains unremedied for 90 days, and the requisite globalmajority has declared an event of default.

- A final judgment of $1 million or more, not covered by insurance, occurs against the issuer(subject to an applicable grace period).

- An event of default under any related document has been continuing for 60 or more days.

- The issuer is required to be registered under the Investment Company Act of 1940.

- CLI fails to have all the equity interest or sole control of the issuer.

Series 2020-1 events of default include:

- A default on interest payments due on the notes on each payment date (subject to anapplicable grace period) or a default on payments of the notes' then-unpaid principal balanceon the final maturity date.

- A default in the payment of any indenture trustee fees when due and payable and unpaid forfive business days.

- A default in the performance or a breach of any issuer covenants that materially and adverselyaffects noteholder interests (subject to an applicable grace period).

- A breach of issuer or certain seller representation and warranties included in the transactiondocuments that materially and adversely affects noteholder interests (subject to a graceperiod).

- The indenture trustee's failure to have a first-priority perfected security interest in a materialportion of the issuer's containers (subject to an applicable grace period).

According to the transaction's documents, when an event of default occurs and is continuing,distributions will be made across all series of notes in the order described in the paymentwaterfalls above. If the default results from the issuer's bankruptcy, whether voluntary orinvoluntary, the notes will be declared due and payable. If the default does not result from theissuer's bankruptcy, control parties on behalf of more than 50% of the outstanding notes orexisting commitments from all series, both senior and subordinated, may declare the notes to beimmediately due and payable, institute judicial proceedings for collection, and sell the containers.

Trust Early Amortization Events

Under the transaction documents, a trust early amortization event will occur if any of the followingevents or conditions occurs:

- An event of default has occurred and is continuing or another material default under thetransaction's documents has occurred and is continuing for more than 60 days.



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- A manager default has occurred and is continuing.

- On any determination date, the aggregate amount of the outstanding notes exceeds the assetbase, and that amount remains unremedied for 30 days.

If there is a trust early amortization event on any payment date, then the early amortization eventwill continue until the business day when the requisite global majority waives the earlyamortization event in writing.

Series-specific early amortization events for series 2020-1

As of any date of determination, the existence of any one of the following events or conditionsshall constitute an early amortization event for the series 2020-1 notes (each, a series 2020-1early amortization event):

- The occurrence and continuation of a series-specific event of default.

- As of any payment date, the interest coverage ratio (the ratio of [i]total collections aftersubtracting senior fees during the most recent six collection periods, and [ii]sum of interest andnet payment under interest rate hedges during the most recent six collection periods) is lessthan 2.0x for series 2020-1 for four consecutive record dates.

- The eligible containers' weighted average age exceeds 9.0 years.

If there is a series-specific early amortization event caused by the event described in the firstseries-specific bullet above, then the early amortization event will continue until the business daywhen the requisite global majority waives the early amortization event in writing. If the earlyamortization event was caused by the failures described in the second or third series-specificbullets above, the event will continue until the failure is cured.

Legal Matters

In rating this transaction, we will review the legal matters that we believe are relevant to ouranalysis, as outlined in our criteria.

Surveillance

We use surveillance data to perform periodic reviews on all rated container securitizations toidentify potential and emerging trends. Our ratings reflect our opinion of the transaction's ongoingrisk profile. Our surveillance group undertakes a number of steps to determine whether the ratingsassigned to a transaction continue to reflect our view of that transaction's performance. Thesesteps include, among others:

- Analyzing the servicer reports that detail the underlying collateral's performance;

- Making periodic telephone calls and holding meetings with the issuer's and servicer's keymanagement personnel to identify any emerging trends or changes in servicing standards;

- Monitoring the supporting ratings on a transaction; and

- Remaining informed of related industry developments and events that may affect a ratedtransaction's overall performance.



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Despite the extensive and immediate disruption in certain sectors, the impact of the COVID-19pandemic has been far less severe on the container leasing markets. For more information, see"Container And Railcar Leasing ABS Risks In Light Of COVID-19," published April 15, 2020. We willcontinue to review whether, in our view, the ratings assigned to the notes remain consistent withthe credit enhancement available to support them, and we will take further rating actions as wedeem necessary.

S&P Global Ratings acknowledges a high degree of uncertainty about the evolution of thecoronavirus pandemic. The consensus among health experts is that the pandemic may now be at,or near, its peak in some regions but will remain a threat until a vaccine or effective treatment iswidely available, which may not occur until the second half of 2021. We are using this assumptionin assessing the economic and credit implications associated with the pandemic (see our researchhere: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions andestimates accordingly.

Related Criteria

- Criteria | Structured Finance | Legal: U.S. Structured Finance Asset Isolation AndSpecial-Purpose Entity Criteria, May 15, 2019

- Criteria | Structured Finance | General: Counterparty Risk Framework: Methodology AndAssumptions, March 8, 2019

- Criteria | Structured Finance | General: Incorporating Sovereign Risk In Rating StructuredFinance Securities: Methodology And Assumptions, Jan. 30, 2019

- Criteria | Structured Finance | ABS: Global Container Lease-Backed ABS Methodology AndAssumptions, June 5, 2015

- Criteria | Structured Finance | General: Global Framework For Assessing Operational Risk InStructured Finance Transactions, Oct. 9, 2014

- Criteria | Structured Finance | General: Criteria Methodology Applied To Fees, Expenses, AndIndemnifications, July 12, 2012

- General Criteria: Global Investment Criteria For Temporary Investments In TransactionAccounts, May 31, 2012

- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011

Related Research

- Container And Railcar Leasing ABS Risks In Light Of COVID-19, April 15, 2020

- Guidance: Global Container Lease-Backed ABS Methodology And Assumptions, Feb. 21, 2018

- Credit Rating Model: Container Assumptions Analyzer, Feb. 26, 2016

- Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top FiveMacroeconomic Factors, Dec. 16, 2016



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CLI Funding VI LLC (Series 2020-1)

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Transcript of CLI Funding VI LLC (Series 2020-1)