Commercial Equipment Finance is returning to the securitization market with its second asset-backed securities deal and aims to sell $110 million in such notes to investors through the Commercial Equipment Finance 2024-1 trust.
Due to close on April 11, the deal will sell notes through three tranches of notes, with class A, B and C offering $96.8 million, $7.8 million and $5.3 million, respectively, according to DBRS, analysts at DBRS Morningstar said. Known as CEFI 2024-1, the deal will be supported by revenue from small- and medium-ticket equipment finance contracts. Two entities of Commercial Equipment Finance—which are international and domestic—originated the contracts and service them, DBRS said.
Among the deal's system of credit enhancements is overcollateralization, subordination and a cash reserve equal to 1.30% of the deal's aggregate initial note balance. Notes will amortize sequentially, allowing the trust to release cash to the issuer on a limited basis. This cash release can only happen if the transaction maintains overcollateralization, ideally at 11.25% of the current aggregate discounted pool balance. Otherwise, the deal has an OC floor of 1.5%, the rating agency said.
Initial OC will equal 7.25% of the initial discounted pool balance.
Otherwise, the deal will have a four-month prefunding period, and during that time the originators can originate and sell up to $13.6 million of additional contracts, which equals about 11.5% of the aggregate discounted pool balance of the expected final collateral pool, when it's fully funded.
The classes A, B and C notes have stated maturity dates of July 16 and October 15 in 2029, respectively, while the C notes mature on April 15, 2031.
The senior notes have priority for principal payments, so that each subordinated class will receive payments only when the more senior tranches are paid in full, DBRS said. In terms of interest payments, the subordinated classes will get payment on the established payment dates only if funds are available after making a list of distributions on the more senior classes of notes. Those other payments include fees, expenses, any reimbursements due to parties such as the servicer—CEFI—or the indenture trustee, Wilmington Trust.
The current CEFI 2024-1 deal has 1,165 contracts in the collateral pool, with a discount rate of 8.25%, and an average statistical discounted contract balance of $91,907. Transportation, construction and printing account for the top two asset classes by percentage of the pool balance, 50.6%, 30.9% and 3.5%, respectively.
The program's first ABS, CEFI 2021-A, priced 16 months ago, with a much smaller pool of contracts, 673.
