In their recent Consumer ABS Weekly, Citigroup Global Market analysts said that the eight to 10 basis point concession for two– to three-year equipment lease ABS is attractive versus auto ABS. They also expect more spread differential compression between these sectors.
Within the equipment lease ABS sector, analysts suggested collateral from CNH Capital America, which is the financial services company of CNH Global. CNH America is a programmatic issuer that has "a long and consistent performance history," they said.
The CNH ABS structures have stayed uniformly robust in the pre- and post-crisis environments, causing investors to be well-protected, analysts said. Citi also cited the good diversification that the trust offers and the agricultural sector's healthy economics. "This positive momentum should translate to sustained favorable credit performance for the trust assets," analysts wrote.
The CNH trust benefits from having 95% of its receivables in the U.S. farm industry while its construction business has also steadied.
At the end of 2011, Citi analysts noted that CNH’s agricultural equipment sales comprised 73% of its revenues, while its construction equipment sales made up 20% of its revenues. The firm's worldwide finance operations represented 7% of its net revenues. Also, as of December 31, 2011, CNH’s worldwide finance operations managed a portfolio of receivables of about $17.1 billion, both on- and off-book.
Additionally, analysts pointed to the consistent good performance of the U.S. farm sector as it is benefiting from near-record income. The industry typically does well under both a strong and weak economy given that food is a basic necessity. In this sense, Citi analysts noted that the CNH trust provides good diversification to other ABS asset classes that are prone to more cyclicality.
Analysts also stated that the pre- and post-crisis credit enhancement has scarcely changed, which indicates stability.
However, the collateral mix and some other structural details have altered as a result of the company's shifting business mix.The construction industry was particularly hit hard because of the financial crisis. This resulted in CNH’s construction equipment receivables dropping as a proportion of the total and considerably affecting the asset mix in post-crisis transactions. For instance, analysts said that construction equipment decreased from 31% of the pool to only 6%. Analysts compared 2006-B to 2012-B, respectively.
"This exposure shift is beneficial from a risk perspective, because the agricultural equipment tends to perform better," analysts wrote.
CNH trust has issued three ABS deals over 2010 and 2011. For this year, the trust has issued two offerings to date, analysts stated.