After an 18-month absence, the CNH Capital Canada Receivables Trust is returning to the securitization market, intending to raise approximately $459.6 million from retail installment sales contracts on agricultural and construction equipment.
CNH CCRT is also raising a smaller amount of money than the previous deal, CNH CCRT 2021-2, which took away $535 million in proceeds from the market in November 2021, according to Asset Securitization Report's deal database. Also, the deal is from a different program than the CNH Industrial Capital, which tapped the ABS market last month for $817 million in notes secured by American construction and agricultural equipment.
RBC Dominion Securities, BMO Nesbitt Burns, CIBC World Markets and Academy Securities will serve as underwriters, and are working toward a May 24 closing date, says DBRS Morningstar, which will assign ratings to the notes. The trust will issue fixed-rate notes and repay interest and principal to investors sequentially, says DBRS.
All of the notes will be rated 'AAA', DBRS said. The class A-1 notes have a final scheduled maturity date of June 15, 2026, while the A-2 notes are slated to mature on Oct. 15, 2029.
DBRS raised some concerns about the CNH CCRT 2023-1's cash flow timing and its assumed discount rate. According to DBRS the notes will pay investors on a monthly basis, while the supporting assets actually collect payments on a range of intervals—monthly, quarterly, semiannually and annually. The terms also vary, with 28.5% on annual payments, 51.4% on semiannual payments, 14.6% on monthly terms and 4.6% on other terms.
"A history of large prepayments on the outstanding receivables contracts result in an irregular schedule for principal repayments," DBRS analysts observed. Further, 19.7% of the collateral contracts have annual percentage rates that are higher than the assumed discount rate of 7.5%, setting up a potential shortfall should the contracts default or prepay.
The deal does benefit from 2.49% in annualized excess spread and a cash spread valued at 2.00%, or $9.1 million, of the collateral's initial contract value.
The spread account must be replenished before any excess funds are released to the issuer, the rating agency said.
CNH Capital is seller and administrator, while Canada Western Trust will serve as trustee, DBRS said.
