Equify Financial is sponsoring its first term asset-backed securitization (ABS) deal, a 144a transaction that will float $157.9 million in debt secured by equipment contracts extended to construction and transportation companies, primarily.
The transaction, Equify ABS 2023-1, is expected to close on Oct. 11, 2023 and will issue three classes of notes. Revenue from mid- to large-ticket equipment contracts and related assets will secure the notes, according to ratings analysts at DBRS Morningstar. Seventeen out of 166 obligors each account for more than 2.0% of the aggregate securitization value, giving the deal moderate obligor concentrations, DBRS said.
All of the notes have the same legal final maturity date—Sept. 15, 2031. Note repayments will begin on November 15 and occur on the 15th day of each month after that, or the next business day, according to the rating agency.
DBRS says that it applied a stressed cumulative net loss (CNL) hurdle of 28.9%, 21.4% and 10.4% in cash flow scenarios in alignment with to the notes rated 'AA', 'A' and 'BBB', respectively. Those ratings were assigned to the classes A, B and C notes, the company said.
Equify's collateral pool exhibits moderate obligor concentrations. The largest obligor accounts for 5.1% of the pool, the five largest represents 20.5%, and the top 10 accounts for 33.8%. The pool is also concentrated geographically, the rating agency said. Obligors located in Texas account for 62.8% of the pool's aggregate securitization value.
While weighing its ratings considerations, DBRS pointed out that Equify's managed portfolio had experienced just $8.7 million in cumulative net losses, or 0.46% of the aggregate original financed amount, $1.9 billion.
Equify's notes benefit from several forms of credit enhancement, including subordination, a cash reserve, available excess spread and some other structural provisions. At closing, Equify had an initial overcollateralization level of 13.0%, which is expected to build up to 14.50% if the aggregate securitization value. The cash value comes to 1.50% of the initial aggregate securitization value.
