Auxilior Capital Partners is preparing to tap the asset-backed securities market for the first time, selling $386.4 million in bonds to investors that will be secured by a pool of equipment loans and leases.
The contracts finance new and used equipment concentrated largely in three business segments, primarily—construction and infrastructure, transportation and logistics and franchise finance. The sponsor, Auxilior Capital Partners, has an experienced senior management team with more than 30 years of experience as founders and operators of commercial finance businesses, according to Moody's Investors Service, which will assign ratings to six of the structure's seven classes of notes.
Auxilior's collateral base is diversified along several lines, adding to its potential appeal to investors from a credit standpoint. Its obligor concentration, for instance, is very low. More than 3,100 obligors are in the pool and the top obligor accounts for just 1.7% of the initial pool balance, Moody's said. The top 10 obligors, meanwhile, constitute just 12.7% of the pool. Also, seven of the contracts have personal guarantees and the guarantors themselves have a weighted average FICO score of 779, Moody's said.
J.P.Morgan Securities, Deutsche Bank Securities and BMO Capital Markets are lead underwriters on the deal, according to the rating agency.
Moody's credits the inaugural program's transaction structure, too. All of the class A notes have total hard credit enhancement levels of 22.35%, and notes have legal final maturity dates ranging from Nov. 15, 2024 through Dec. 15, 2032. Initially the notes enjoy an initial overcollateralization level of 3.75%, a non-declining, fully funded reserve account of 1.00% and estimated annual excess spread of about 1.5%. The transaction will use available excess spread to pay down the notes until overcollateralization reaches its 8.75% target as a percentage of the pool balance.
Even though the transaction and sponsor have all of these characteristics in their favor, Moody's notes some potential credit challenges. One is that Auxilior Capital Partners is small sponsor with a limited track record in its space. Its management team founded the company in 2020, and is taking on the role of the collateral pool's servicer, too, Moody's said.
Another aspect of the deal to watch is the 20% of contracts where franchise equipment acts as collateral. The securitization performance of loans backed by these types of equipment is thin, and although Auxilior Capital Partners' track record has been strong, it has also been short, Moody's said.
The rating agency expects to assign 'Aaa' ratings to the A2 and A3 notes; 'Aa2' to the class B notes; 'A1' to the class C notes; 'Baa1' to the class D notes and 'Ba2' to the class E notes. DBRS Morningstar also plans to rate the notes, and assigns an 'R-1' rating to the class A1 notes; 'AAA' to classes A2 and A3; 'AA' to the class B notes; 'A' to the class C notes; and 'BBB' and 'BB' to classes D and E, respectfully.
