A pool of loans and leases on agricultural equipment, most of which pay on a monthly basis, will provide collateral for a $911.5 million in asset-backed securities (ABS) deal from DLLAD 2023-1.
DLL Finance, the company that originated the financing, is also sponsoring the deal, according to Moody's Investors Service. The rating agency considers the monthly payments frequency to be a credit strength, because that payment frequency stabilizes cash flows to the notes and helps ensure that investors are repaid in a timely way, Moody's said. Monthly contracts comprise 83% of the pool balance, a significantly higher proportion than represented in the securitization deals of DLL's peers, where the monthly payment frequency accounts for only 33% of the underlying pool.
Monthly payment frequencies work out so well, in fact, that DLL Finance has experienced consistently low delinquencies and net losses since 2012. Net losses as a percentage of DLL Finance's overall managed portfolio reached only 0.12% as of June 20, 2022, the rating agency said.
Moody's expects the quality of the supporting agricultural equipment loans, numbering 35,100, to promote good performance in the bonds issued to investors. Another major plus is that the loans are highly diversified in a number of ways.
"Geographic and equipment diversification, low cyclicality of the agriculture sector, and historically low overall debt burdens will help most agricultural equipment obligors continue to meet their debt obligations," Moody's analysts wrote in the pre-sale report.
Fixed-rate loans comprise 73.6% of the pool, and leases account for another 26.4%. The top obligor accounts for 0.7% of the pool, and the top 10 obligors account for just 2.8%, the rating agency said.
J.P. Morgan Securities is the lead underwriter on the deal, which will repay investors through a sequential structure, according to Moody's, and the rating agency believes this will help the deal build credit enhancement rapidly. DLLAD 2023-1 has initial overcollateralization of 6.75%, which can build to a target of 8.00%.
While the portfolio has a lot of strengths, Moody's noted that DLLAD 2023-1 has a high exposure to a single industry—the agricultural sector.
Compact tractors and regular tractors together account for 52.6% of the equipment types in the pool. Golf cars—with both electric and gas propellants—account for 17.4% of the pool.
Moody's expects to assign ratings of 'P-1' to the $161 million, class A-1 notes. Classes A-2 through A-4 are expected to garner 'Aaa' ratings. All of the classes of notes have total hard credit enhancement of 7.5%.
Legal final maturity on the notes ranges from Feb. 20, 2024 through June 20, 2030.
