Dell Financial Services is planning its first securitization of equipment leases, according to a presale report published by Moody’s Investors Services.
The $758.6 million deal, Dell Equipment Finance Trust 2014-1 (DEFT), is backed by a pool of fixed-rate, small-ticket office equipment leases and loans, consisting of 23,422 contracts in total as of June 27.
Credit Suisse is the lead underwriter for the deal.
The trust will issue six tranches of notes, including senior and subordinated classes, were assigned provisional ratings by Moody’s. The $325 million class A-1 notes maturing in August 2015 received P-1- preliminary ratings, while the $207 million class A-2 notes were assigned Aaa’ status, maturing in July 2016. The $90.8 million class A-3 notes were also provisionally rated Aaa,’ and mature in June 2020.
Over 85% of the discounted pool balance is backed by contracts with remaining terms of 36 months or less, lowering the likelihood of default because of their short-term nature, which serves as a credit positive.
Since DEFT 2014-1 is Dell’s first asset-backed securitization, Moody’s presale report compares it with recent small-ticket deals from General Electric and CIT. The most significant difference is obligor concentration. For the DEFT 2014-1 transaction, the top five lessees make up 15.7% in the initial collateral pool, while the top five lessees for CIT 2013-VTI and GE Equipment Small Ticket 2014-1 made up 3.6% and 2.1%, respectively. Typically, a higher obligor concentration is a credit negative because one lessee defaulting could severely impact the transaction. However, the strong credit quality of DEFT 3014-1’s top lessees mitigates some of the risk, according to Moody’s.
Dell Finance Services was initially founded in 1997 as a joint venture between Dell and Newcourt Credit Group. The company is a wholly owned subsidiary of Dell Inc.—rated Ba3’ by Moody’s—and operating as a full-service captive finance company in North America and Europe and helping customers finance Dell products and services.