Hewlett-Packard Financial Services, the financial subsidiary of Hewlett Packard Enterprise, is preparing a securitization of revenue from lease contracts, in a deal that is expected to close in one week and raise about $730.5 million.
Hewlett-Packard Financial Services pioneered securitization in this asset class three years ago, and the current transaction is the program's third deal for the year, according to a pre-sale report from S&P Global Ratings.
The loans finance technology equipment, such as servers, storage laptops and PCs, networking, print and software, according to Moody's Investors Service, and most of the financing (86.9%) was extended to global entities, large enterprises or medium-sized businesses, according to the rating agency.
This time HPEFS, 2022-3 has more initial hard credit enhancement on classes A, B, and C compared with the previous deal, due to rating level stressed losses, mainly, according to S&P Global Ratings.
Initial hard credit enhancement of 30.00% is available on all the class A notes—A-1 through A-3. Classes B, C and D, meanwhile, benefit from initial hard credit enhancement levels of 25.25%, 17.50% and 7.25%, is available on classes A, B and C, respectively, according to S&P.
Subordination on classes A, B and C were 22.75%, 18.20% and 10.25%, respectively, also an increase over levels from the previous transaction, S&P said.
Citigroup Global Markets is the lead underwriter on the transaction, which will issue the notes through a senior-subordinate structure, according to Moody's Investors Service. The notes will benefit from a 1.00% reserve account, and 6.25% initial overcollateralization, according to Moody's.
Otherwise, the transaction also benefits from liquidity in the form of cash in a reserve account, Moody's said.
Some $779.2 million in fixed-rate, small ticket equipment leases and loans will secure the notes. The current transaction contains two types of leases—true, which account for 50.4% of the pool; finance, which represents 43.1% and loans, accounting for 6.6% of the pool, according to Moody's.
The collateral is also top heavy, in terms of obligor concentrations. The top 20 obligors account for 65.22% of the underlying collateral. The rest is very granular, with 1,234 obligors accounting for the remaining 34.78% of the underlying collateral. Exposures to any single obligor, however, is less than 1%.
HPEFS is also fairly diversified in terms of end user industries, according to Moody's. General medical and surgical hospitals, commercial banking and national security account for 11.5%, 7.8% and 7.6% of all the end users by industry, according to Moody's.
Moody's intends to assign ratings of P-1 to the $168 million, A-1 notes; 'Aaa' to the A-2 through B classes of notes; 'Aa2' to the class C notes; and 'A2' to the class D notes.
S&P, for its part, intends to assign ratings of 'A-1+' to the A-1 notes; and 'AAA' to the A-2 and A-3 notes. It expects to rate the subordinated notes, classes B, C and D, 'AA', 'A' and 'BBB,' respectively.
