Dell Financial Services (DFS) is looking to price a $1.22 billion securitization of corporate loan and lease contracts for Dell-branded PC hardware and software.
DFS is marketing, via BofA Securities, six note tranches all backed by $1.277 billion in aggregate balances of largely short-term contracts with under 36-month terms.
According to ratings agency presale reports, the transaction is the 13thoverall U.S. equipment securitization sponsored by DFS, the captive finance arm of tech giant Dell Inc., each a subisidiary of parent firm Dell Technologies. The deal is expected to close March 17.
Both Moody’s Investors Service and Fitch Ratings have assigned preliminary triple-A ratings to two tranches of Class A notes sized at $463 million and $252.95 million, double-A ratings to a $29.38 million Class B tranche, a single-A to a $35.8 million Class C offering and the equivalent of triple-B to the $49.8 million in Class D notes.
Moody’s and Fitch also assigned their highest short-term ratings (P-1 and F1+, respectively) to a $389 million money-market tranche.
The contracts are for mostly small-ticket equipment including notebooks, PCs, workstations and software, most of which are with large investment-grade obligors served through DFS's public and large institutions (PLI) business segment. That includes eight of the top 10 contract-holders that make up 27.7% of the pool balance.
Nearly 89% of the contracts are through DFS' PLI unit, up from 70.2% in DFS' prior transaction as the company continues to shift its originations toward "less risky" large commercial obligors and public institutions, “and away from small and medium businesses," according to a report from Moody's.
Much of the larger commercial client push has been driven by Dell’s EMC business dedicated to cloud-based equipment and services, according to Moody's.
The collateral consists of 4,971 contracts with an average discounted balance of $256,970 each, with weighted average original terms of 43 months (including nine months of seasoning). However, 68% of the discounted pool balance is backed by contracts for 36 months or fewer, lending to potential lower risk for loss due to the potential for rapid repayment.
Fitch has assigned a 1.3% base-case credit loss proxy of 1.3%, unchanged from its previous proxy for DFS’ prior equipment ABS deal last year. Moody’s has a 1.75% cumulative net loss expectation from Moody’s.
The loss expectations from both agencies account for continued economic impact of the coronavirus pandemic, including slow recovery throughout the year and a GDP remaining below fourth-quarter 20-19 levels for the next 18-30 months. The impact of COVID-19 was minimal on the contracts included in the DFS 2021-2 pool, consisting of 603 contracts totaling $196 million. The majority, 56%, were in the hard-hit services industry, according to Moody’s. “The pace of deferral requests has declined sharply in the recent months and all granted deferrals have already expired,” Moody’s noted in its report.
The DFS 2021-1 deal would be the fourth in the small/mid-size ticket equipment ABS sector this year, following $1.96 billion in deals issued earlier by Hewlett Packard, GreatAmerica Financial Services and Commercial Credit Group.
