CNH Industrial Capital America is sponsoring an $869.9 billion bond offering backed by equipment loan contracts made to the agricultural and construction industries.
CNH Equipment Trust 2017-A has five series of notes, with four senior classes benefiting from 4.5% of credit enhancement (similar to recent CNH asset-backed transactions).
The tranches include a short-term money market Class A-1 series sized at $181 million; a three-year A-2 tranche of fixed notes totaling $310 million; a slice of Class A-3 notes valued at $272 million, due 2022; and an $87.29 million Class A-4 tranche with a legal final maturity date of 2024.
All of the multi-year notes carry preliminary ‘AAA’ structured finance ratings from Standard & Poor’s and Fitch Ratings. The money-market tranche is rated ‘F-1’ by Fitch and ‘A-1+’ by S&P.
A $19.57 million Class B subordinate class is rated ‘A+’ by S&P and ‘A+’ by Fitch.
Citigroup is the underwriter on the transaction, the latest in a long stretch of 61 prior U.S. retail loan securitizations by CNH.
The deal’s statistical collateral pool had an approximate $929.9 million receivables balance for 15,075 contracts, with an average initial loan balance of $61,685. The weighted average adjusted APR is 3.56% for loans with average terms of 62.57 months.
The balance is the highest for a CNH Equipment Trust deal since the company’s second deal in 2014 that totaled $1.04 billion.
S&P has assigned an expected net loss range of 1.5% to 1.75% for the notes. The agency cites increased delinquencies and net losses in the performance of 2015-2016 vintage ABS pools, due to the increasingly stressed agricultural market.
Historically net losses have not exceed 0.6% in deals, which prior to 2008 were mitigated by a stronger concentration of construction equipment loans, according to S&P.
Delinquencies and net losses in the managed portfolio have increased since 2013, particularly as a percentage of the portfolio with total delinquencies climbing to 1.15% of the total balance at the end of 2016 – compared to 0.47% in 2013.
“Despite the increases, both delinquency and net loss levels remain at relatively low levels for the segment, but appear to be normalizing after several years near record-low levels,” S&P’s report stated.
More than 87% of the annual pay contracts in the pool are tied to ag equipment, although the trust’s 12.4% mix of construction equipment (in line with CNH’s two previous deals) is an increase from deals in 2015 and prior.
As of Dec. 31, CNH’s U.S. retail service portfolio was $6.3 billion, which was a second consecutive year of declining account balances in the portfolio. The portfolio peaked at $7.43 billion at year’s end 2014. S&P cites decreased demand for agricultural equipment due to falling commodity prices.