Kubota Credit Corp is preparing to sponsor $731.1 million in securitized bonds, to be repaid from a collateral pool of retail installment contracts on agricultural, construction and turf equipment.
The deal, Kubota Credit Owner Trust, 2025-1, has collateral with stronger credit quality than the previous deal, the 2024-2 series, according to Moody's Ratings. On a weighted average (WA) basis, the 2025-1 pool had a FICO score of 747. Also, the current pool has smaller exposures to the construction and turf sectors compared to the 2024-2 series, which have seen higher loss rates than the agriculture sector.
Contracts on construction equipment, for instance, account for 40.8% of the collateral pool, down from 45.5% in the KCOT 2024-2 series, says Moody's Ratings. Exposure to the turf sector was 7.4%, down from 10.3% in the 2024-2 series. The assets' weighted average original term was 57.7 months, down from 61.7 months, another shift from the 2024 deals. Fitch Notes that the original term is capped at 72 months for the pool.
Obligors also have strong credit quality, Moody's said. The company added that consumer obligors, which account for 47.1% of the pool balance, are of high credit quality, mostly driven by borrowers' demographic characteristics and habits. Moody's says consumer borrowers are generally "middle-aged, established homeowners with high incomes and are not reliant on the health of the US farm economy, since they do not farm as a primary source of income."
J.P. Morgan Securities is the deal's lead underwriter. Kubota Credit is servicing the notes and sponsoring the deal.
The notes benefit from 4.75% in total hard credit enhancement. Credit enhancement includes a reserve account representing 0.50% of the pool balance, and 4.25% in initial overcollateralization, according to Moody's. Initial hard credit enhancement on the class A notes is consistent with the 2024-2 deal, but those levels are higher than 2021-2 through 2024-1, Fitch said.
Yet the deal's credit enhancements are not airtight. Among the deal's potential credit challenges is that KCOT's shift to more construction and longer-term loans has led to higher losses in recent deal years, according to Fitch.
Fitch assigns F1+ to the A1 class of notes and AAA to the rest of the tranches, A2 through A4. Moody's assigns P1 to the A1 notes and Aaa to the rest of the notes.
