A weakened housing market might have changed the composition of the underlying collateral in CNH Capital America's $1.2 billion offering last week, but pricing appeared unscathed.
Regular ABS issuer CNH Capital America, an equipment-financing provider, has come to market at least 15 times before. New and used retail agricultural and construction equipment leased to retail companies and consumers secured the transaction. On this go- around, a weakened housing market contributed to the reduction of originations on leases for construction equipment and reduced the percentage of construction equipment leases. Leases on construction equipment represented 28.7% of the underlying collateral in last week's deal, down from 32.9% in a previous securitization, according to Fitch Ratings. Ultimately, the deal has a 70.6% concentration of agricultural equipment leases securing the notes. Fitch says this is just fine, because the agricultural equipment has historically performed better than construction equipment.
Furthermore, the deal is secured by more equipment leases mainly because of a slight increase in demand from the previous harvest season, said Brian O'Keane, CNH Capital's treasurer. The agricultural market's cyclical nature also explained the decline in consumer installment loans in its collateral mix, O'Keane said. Consumer installment loans on garden tractors and other small agricultural equipment accounted for 3.19% of the collateral pool in its 2006-B transaction, when CNH Capital first began to include those contracts in its equipment financing ABS deals. Once homeowners begin to work on their properties again, there should be a bigger representation of those loans in CNH Capital's next deal.
CNH Capital also sought better ratings treatment by increasing the trust's reserve account by 125 basis points, compared to its prior issuance, thus reducing its excess spread to 90 basis points per annum, from 170 basis points. The reserve account also has a step-down feature. In that, the reserve account will be reduced by 25 basis points in the 24th month and 50 basis points in the 36th month, as long as the bonds perform as expected and do not hit any predefined performance triggers.
Structuring agent Credit Suisse, and Societe Generale, acted as co-lead managers on the deal, O'Keane said.
"Furthermore, the 2007-A collateral composition is comparable to the 2006-A transaction, which is performing within Fitch's expectations," the ratings agency said. Moody's Investors Service and Standard & Poor's also rated the deal.
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