CNH Industrial Capital America and Balboa Capital Corp. launched a combined $1.01 billion of bonds backed by equipment leases Friday.
Both are being rated by Moody’s Investors Service.
The $752.36 million CNH Equipment Trust 2016-C is the sponsor’s third securitization of the year. The trust will issue five tranches of senior notes, including a $156.5 million money market tranche with a preliminary ‘P1’ rating; and four term tranches rated ‘AAA’: a combined $290 million of fixed- and floating-rate notes maturing in February 2020; $213.93 million of notes maturing in December 2021; and $75 million maturing in September 2023. All five benefit from 4.5% credit enhancement
There is also a $16.93 million tranche of subordinate notes with 2.25% credit enhancement maturing in March 2024 rated ‘A1.’
The notes are backed by primarily by new and used agricultural equipment.
CNH has tapped the securitization market regularly over the past 20 years and its deals have consistently performed well; for transactions closed since 2010, cumulative net losses have never exceeded 0.6% of the asset pool. However, there has been some slight deterioration in performance in the most recent period; as a result, Moody’s has increased its expectations for net losses to 1.0%.
Compared with recent transactions, the leases backing the latest deal have a the same number of months of seasoning, a lower percentage of used agricultural equipment loans (whose performance is not markedly different from the new agricultural equipment loan segment), and a lower percentage of annual paying loans, which impact volatility due to their seasonal repayment schedule.
Also of note, approximately 5.5% of the collateral pool is concentrated in Louisiana, where significant flooding has affected many farmers. “The flooding may lead to damaged crops and additional costs to farmers, which will increase the financial stress on these farmers who are already affected by weakening in the agricultural market,” the presale report states. “Crop insurance and government programs should help mitigate these additional risks,” it added.
Balboa is a relative newcomer to the securitization market. The $263 million BCC Funding XIII, Series 2016-1 is only its fourth transaction and the second to be rated by Moody’s.
The trust will issue an unrated money market tranche and a senior term tranche maturing in December 2021 with a preliminary ‘Aa2’ rating; both benefit from 25.25% hard credit enhancement. There are also five subordinate tranches with rating ranging from ‘A2’ to ‘B3.’
The notes are backed by contracts originated by Balboa and are backed by small and mid-ticket equipment used for commercial purposes in physician offices, trucking companies and restaurants, among others.
Moody’s sees Balboa’s short history – it has only been originating leases since 2007 – as a credit challenge. Also of concern is the fact that it leases equipment to small and mid-sized commercial businesses that are unrated, making it difficult to predict the probability that they will default.
However, the pool is highly diversified by industry, lessening the risk to particular sectors of the economy. The top three industries represented are physician's offices (11.5%), local trucking (7.3%), and restaurants (3.4%).
The deal also benefits from a backup servicer, Portfolio Financial Services, and the fact that credit enhancement will build from 4.35% initially to 7.5% as the pool amortizes.
Moody’s cumulative net loss expectation for the asset pool is 3.50%.