Co-sponsors EquipmentShare.com Inc. (EQS) and OWN Tactical Equipment (OWN) are in the market with a $400 million asset-backed securities deal that securitize short-term construction equipment leases.
The OWN Equipment Fund I LLC transaction is split into a $381 million tranche rated A and a $19 million piece rated BBB-. Structured by Citigroup Global Markets, the deal is scheduled to close December 20.
The deal represents EQS's second equipment rental ABS transaction and the first for OWN, a newly formed holding company managed by MidOcean Credit Fund Management. Rating agency KBRA says in a December 12 pre-sale report that the notes are supported by an amortizing pool of collateral comprising nine different equipment types from primarily 10 manufacturers.
As the managing investor, OWN's special purpose entity—the issuer—leases the equipment to EQS under a management agreement, and in turn EQS rents the equipment to end users. The rental is then subject to renewal, KBRA says, and users often renew for multiple months.
The Transaction is secured by equipment owned by the issuer and managed by EQS, which has also entered into a lease requiring it to pay the issuer a variable lease payment equal to the rent billed by EQS to its customers for rental of the equipment, net of certain fees and expenses. The lease payments are the initial source of funds for payments to the noteholders.
A key consideration, according to KBRA, is that the lease and rental period are shorter than the maturity of the notes. The rating agency notes that the lease with EQS is month to month, during which EQS will seek to rent out the equipment. The rental contracts with end users are generally for 28 days and can be extended, while the notes are scheduled to mature in 84 months. As contractual payments are monthly and can vary based on the rentals of the equipment, the cashflows initially depend on EQS's ability to successfully rent the equipment.
"If EQS is unable to generate enough rental income a liquidation event may occur," KBRA says.
Should EQS declare bankruptcy, OWN would most likely have to petition the bankruptcy court to repossess equipment located on EQS lots, KBRA says, and repossession of any equipment leased by an EQS customer and subject to certain customer rights could delayed liquid.
EQS was founded in 2015 and is one of the largest equipment rental companies in the U.S., renting out its own equipment as well as managing rentals of equipment owned by third parties (OWN Program). As of September 30, 2024, EQS had 270 full-service branches. locations in 43 states with $6.2 billion in original equipment cost (OEC) under management, including $4.0 billion under the OWN Program.
