DBRS Morningstar has assigned provisional ratings to a fixed-rate agricultural crop-backed loan securitization to be issued by ARM Master Trust.
The securitization consists of $185.37 million in A (sf) rated, Class A notes and $14.62 million in BBB (sf) rated, Class B notes. It is structured as a Rule 144A, and Regulation S transaction under the Securities Act of 1933, according to DBRS Morningstar analysts Haksun Kim, Scott Rossmann and Stephanie Whited, who compiled the report.
The series 2022-T1 notes are backed by a pool of agricultural production loans originated by the lender Agrifund, which also provides crop insurance brokerage services to U.S. farmers who seek seasonal working capital financing. The farmers typically repay the loans through the proceeds of selling their crops, crop insurance payments, and occasionally, government subsidies. Ag Resource Holdings is the company’s operations, servicing and crop insurance business.
Founded in 2009, Ag Resource Management, the issuer, is a crop production lender to U.S. farmers, primarily in the Midwest, via 28 storefronts in 18 states. It has originated approximately $4.89 billion in crop loan commitments, from 2010 through April 29.
The notes generate monthly interest payments, but there is no periodic interest payment or principal payment due until the loan maturity date.
The transaction has a reserve account of $2 million, or 1% of the initial series note balance funded fully at closing. Additionally, the reserve account must be equal to 1% of the series note balance present as of each payment date.
The collateral is shared with other ARM securitizations, and features a three-month revolving period, “which allows the trust to purchase additional eligible crop loans (receivables) with principal collections,” the analysts wrote. The loan pool is subject to excess concentration amounts during its revolving period, as well as “certain limitations on underlying insurance carriers, such as minimum financial strength ratings and minimum policy coverage,” the analysts added.
The average outstanding loan balance and credit limit are $495,137 and $858,156 respectively, or 57.7% credit line utilization rate. The weighted-average loan term is 13.2 months but loans can transition to a longer-term pool at the end of the revolving period.
The eligible balance of every crop loan in the collateral pool must have a minimum of 90% of its funded amount covered by crop insurance. Based on this, at least 98.50% of the 2022-T1 collateral pool will get crop insurance coverage.
Up to 85% of all farms in the U.S. have multi-peril crop insurance backed by the Federal Crop Insurance Corporation and administered by the Risk Management Agency of the U.S. Department of Agriculture. That department requires all RMA loans to have federally reinsured and approved crop insurance policy, according to the report.
Based on historical securitization net write-offs and anticipated ARM managed loan pool losses by crop year, DBRS’ constant loss rate projection is at 1% on the collateral pool.
