Two equipment lessors, Kubota Credit Corp. and CNH Industrial Capital, are coming to market with a combined $1.45 billion in asset-backeds, according to Fitch Ratings.
Both transactions have maturities ranging from 2018 to 2024. All but one of the notes will pay a fixed rate of interest, with the outlier being CNH’s class-A2B note, which will pay a floating rate over one month LIBOR.
Kubota’s $700 million transaction is comprised of four tranches of class-A notes, including a $152 million money market tranche and three triple-A rated tranches. All benefit from credit enhancement of 4%, consistent with Kubota’s three securitizations since 2014. Fitch expects losses to be approximately 1.20%, unchanged from its previous securitization but 10 basis points lower than two other transactions completed since 2016.
Collateral for the notes consists primarily of leases on agricultural equipment (78% ) of the pool, and 99.99% of the leases finance new equipment.
In contrast, CNH’s $747.56 million transaction includes five senior tranches and one subordinate tranche. The senior tranches, all rated AAA (excluding a $132 million money market tranche), benefit from 4.50% credit enhancement, consistent with its past 15 securitizations. Credit enhancement for the subordinate tranche, rated A+ by Fitch, is unchanged from its past 16 transactions at 2.25%.
Agricultural equipment leases make up 88% of the collateral for the notes, with the remaining 12% backing construction equipment leases. Only 45% of the leases are for new equipment.
Fitch noted that the high concentration of agricultural equipment leases in CNH’s transaction, combined with a recent weakening in agricultural performance due to lower commodity prices, pose a potential for losses. However, the rating agencies believes that geographic diversity, diversification within the agricultural sector, and equipment versatility help mitigate some of that risk.
Losses are expected to be 1.15%, consistent with the past six CNH securitizations rated by Fitch.
CNH is a leading distributor of agricultural and construction equipment worldwide. Fiat owned 87% of CNH before demerging in 2011, when various subsidiaries of Fiat including CNH were aggregated into one entity. In 2013, Fiat bought the remainder of CNH’s stock and merged into CNH Industrial.
Headquartered in Japan, Kubota Corp. specializes in farming and industrial equipment. It entered North American markets in 1972, and has since become the leading distributor of tractors under 120 horsepower in the United States.
