BMO Harris revives transportation finance ABS of former GE unit

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BMO Harris is making a “re-debut” of a securitization platform for loans issued by the transportation finance business BMO acquired four years ago from GE Capital.

According to Moody’s Investors Service and Fitch Ratings, the $533.9 million Transportation Equipment Trust (TFET) 2019-1 is the first-ever transport finance business securitization serviced and sponsored by BMO Harris, which picked up the business from GE in 2015.

The capital stack includes four senior-note tranches: a Class A-2 tranche totaling $157.62 million due January 2022, a $142.84 million Class A-3 tranche due April 2023, a Class A-4 tranche totaling $60.5 million maturing in March 2024, in addition to a one-year Class A-1 money-market tranche of $131.6 million in notes.

The term notes have preliminary triple-A ratings from Moody’s and Fitch. The A-1 tranche carries Moody’s highest P-1 short-term rating, and Fitch's top rating of F1+.

All of the senior notes are supported by 8.25% credit enhancement.

While it is the first BMO Harris transaction backed by new and used receivables, the “transaction will be a re-debut of the GE Equipment Transportation LLC (GEET) ABS platform,” noted Moody’s. BMO’s parent company, Bank of Montreal, “has significant experience as a sponsor of credit card and auto asset-backed securitizations,” Moody’s report added.

Moody’s stated the pool is “granular” containing a wide base of 5,875 contracts with an average balance of $90,883. The deal is comparable to trucking and equipment trust pools issued by Volvo Financial Equipment Trust and Daimler Trucks Retail Trust, the agency stated.

The pool is seasoned an average OF 16.7 months, longer than the deals from Volvo and Daimler. But BMO Harris has “significantly” higher exposure in the small-fleet and small-business segments (67.7% of the pool’s aggregate contract balance), which have experienced higher losses than medium- and large-fleet segments. Over 84% of the contracts are for new equipment and 63.2% are tractors.

Since 2015, the net loss rates of BMO’s transportation finance business ranged from 0.3% to 0.9%, according to Moody’s presale report.

“Both net loss and delinquency rates have declined since 2016, a peak seen as a result of strengthening in the US manufacturing sector and the current constrained truck capacity relative to demand,” the report stated. “Over the past two years, demand for trucks has exceeded supply as a result of prior fleet curtailments and strong demand fundamentals as US factories increased production and retailers stocked up, resulting in tightened capacity.”

Moody’s expected net losses on the deal are 1.5%, while Fitch's base-case loss proxy is 2.15%.

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