A German finance company is securitizing a pool of widely diverse equipment leasing receivables it books from small enterprises and individual entrepreneurs in a €370.3 million (US$434.6 million) transaction.

Abcfinance GmbH, headquartered in Cologne, is putting together its first static cash securitization this year of lease receivables from small-ticket items – ranging from vehicles and medical equipment to high-end fitness machines and tanning beds.

Milon Industries GmbH

The transaction, ABC SME Lease Germany SA, Compartment 4, includes €296.1 million in Class A notes with a preliminary Aaa rating from Moody’s Investors Service. The notes have 19.47% credit enhancement, involving subordination of three junior classes of notes as a subordinated €1.5 million loan that is funding a supporting reserve account.

The notes are also expected to benefit from an expected 2.07% net excess spread between the price of the notes and the fixed-rate receivables that carry a weighted average interest rate of 4.7%, according to Moody’s.

The transaction follow up Abcfinance's €433.3 million Compartment 3 offering from October.

The deal was arranged by Raiffeisen Bank International AG.

The total amount of receivables balances is €386.9 million from among 11,624 borrower groups that have contracts for 15,371 assets. The accounts have remaining terms of 3.9 years and a seasoning of 0.8 years.

The contracts are originated by two entities that share ownership interest in the trust. Abcfinance, a subsidiary of Abcbank GmbH, holds a 69% share alongside the finance arm of high-tech fitness equipment manufacturer Milon Industries. Milon Financial Services is majority owned by Abcfinance; both are subsidiaries of the family-run Wilh. Werhahn KG conglomerate.

The underlying equipment assets for the pool are derived from five product groups – facilities, machines, road vehicles, solariums (tanning beds) and “others” – that abcfinance leases to dozens of industries. The top lessors by sector concentration levels include firms in hotel/casino, construction, capital equipment, beverage/food/tobacco, business services, cargo transportation and the healthcare/pharmaceutical industries.

Moody’s notes the diversity of the pool, with the top 20 debtors making up only 5.47% of the pool. The greater concentration is in location, with more than 25% of the lessors based in the North Rhine-Westphalia region.

The collective weighted average proxy rating of these SME companies is considered on the higher rungs of the speculative-grade spectrum (Ba3+), from which Moody’s modeled an annualized 4.85% historical default rate (investors are not exposed to residual value risk in the pool, according to Moody’s).

The diverse mix of assets make peer comparison difficult – other German leasing firms mainly derive receivables from auto leases – as well as the static structure of the transaction in which abcfinance will add no further receivables. The notes have a legal maturity of 11 years.

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