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CCG keeps adding exposure to machine tools in equipment lease ABS

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Commercial Credit Group has increased exposure to machine tools in its next equipment lease securitization, according to Fitch Ratings.

CCG Receivables Trust 2018-2 is backed by $257.7 million of loans and leases, 8.9% of them on machine tools, up from 4.93% in the sponsor’s previous deal, completed in February. It’s only the second deal to include machine tool loans and leases.

Customers in this segment predominately operate in two main subsectors, fabrication and chip cutting, and share many of the same qualities as CCG’s historical customer base, according to Fitch. That is, they generally are midsize family businesses that have an operating history of 10-plus years.

The concentration of transportation equipment has also increased, to 47.51% from 44.02% in the February deal, reflecting a slight rebound in this industry over the past year. Meanwhile, exposure to construction equipment has decreased, to 32.86% from 34.55%, as has exposure to waste equipment, to 9% from 13.49%.

Similar to prior transactions the financed equipment consists primarily of trailers, trucks, earth-moving equipment and cranes. Over-the-road tractors represent the largest equipment type at 23.2%, which is within the historical range for CCG transactions. The 2018-2 pool contains machining centers and lathes following the introduction of the machine tools segment in 2018-1. Overall, the top 10 equipment types comprise 65.9% of the pool, consistent with 2018-1 and at the lower end of the historical range of 61%–79%.

The contracts supporting 2018-2 have 6.6 months of seasoning, down from 8.8 months in 2018-1 and on the lower end of the range of prior transactions.

Nevertheless, Fitch has trimmed its expectations for cumulative net losses to 2.9% from 3.1% in the prior deal. Nevertheless, CCG is providing slightly higher levels of credit enhancement on the two senior classes of note on offer.

The Class A notes, which consist of $61 million unrated money market tranche and $158.07 million of term notes provisionally rated AAA, benefit from 16% credit support; that’s up from 15.55% on the Class A notes issued in the February deal.

A $25.77 million tranche of Class B notes is provisionally rated A and benefits from 6% credit support up from 5.85%, and $6.83 million of Class C notes benefit from 3.35% support, unchanged from the prior deal.

All of the term notes have a legal final maturity of December 2025.

BMO Capital Markets is the lead underwriter.

In addition to higher credit enhancement, all classes of notes benefit from 5.86% in expected excess spread per year.

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Equipment ABS