KBRA assigns preliminary ratings to six classes of notes issued by AFG ABS II, LLC (AFG 2026-1), an equipment ABS transaction.

AFG 2026-1 represents the second equipment ABS transaction to be sponsored by Alliance Funding Group (AFG or the Company). AFG is a small and medium ticket equipment finance company founded in 1998 and headquartered in Tustin, California. AFG employs a vendor model generating originations through relationships with original equipment manufacturers, distributors, and resellers. The Company employed an originate to sell strategy through most of its history but began retaining originations in 2018.

AFG 2026-1 is backed by a pool of equipment loans and leases (Equipment Contracts). The statistical discounted pool balance (Statistical Pool) totals $193.3 million and represents the projected cash flows of the Equipment Contracts discounted at a rate of 8.00%. As of the initial cutoff date (October 31, 2026), the initial pool balance is projected to be approximately $199.1 million and the initial pool characteristics are expected to be substantially similar to the Statistical Pool. The total collateral may increase by up to $45.0 million (23.28% of the Statistical Pool) through the addition of Equipment Contracts during the three-month prefunding period.

The Statistical Pool includes 1,652 contracts, with an average contract balance of $116,997. Obligor concentrations are low with 1,387 total obligors and the largest obligor representing approximately 1.84%. The Statistical Pool is diversified geographically with the largest state, California, representing approximately 13.72%, followed by Texas at 12.99%, and all other states representing less than 7% each. The pool is concentrated somewhat in the general construction and specialty trades industry, at approximately 16.36%. The pool benefits from a weighted average FICO of 750 and weighted average obligor time in business of 13.3 years.

AFG 2026-1 will issue six classes of notes, including a short-term tranche. Credit enhancement is comprised of overcollateralization, a cash reserve, subordination benefiting senior classes and excess spread. The overcollateralization is initially approximately 10.50% and is subject to a target equal to 17.50% of the current pool balance and a floor equal to 0.50% of the initial pool balance, accounting for any prefunding that occurs. The reserve account is funded at 1.00% of the initial pool balance and is non-amortizing.

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Methodologies

• ABS: Equipment Lease & Loan ABS Global Rating Methodology
• Structured Finance: Global Structured Finance Counterparty Methodology

Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Information on certain affiliations between directors of KBRA Ratings and rated entities or related third parties can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the US Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. Kroll Bond Rating Agency Japan K.K. is registered as a CRA with the Japan Financial Services Agency. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.

Doc ID: 1018057

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