After recently completing its largest equipment-receivables deal to date, CNH Capital Corp., the financial services arm of CNH Global N.V., is gearing up for bigger transactions. The company plans to issue three securitizations annually totaling approximately $3 billion.
The $1.1 billion deal, which was primarily backed by U.S. agricultural and construction equipment retail receivables originated through both Case Corp. and New Holland N.V. dealerships, was divided into four senior tranches and one subordinate tranch. Salomon Smith Barney was the lead manager on the deal.
This transaction was the first securitization issued since Case Capital and New Holland merged in November 1999.
"Our objective was to establish a benchmark for executing larger, more liquid transactions," said Ralph Than, vice president and treasurer at CNH Capital. "This deal solidifies our position as one of the largest public commercial equipment securitizers in the market."
The Merger
"The merger between Case and New Holland created an $11 billion powerhouse in the agricultural and construction equipment industry," stated Than. As a result of the merger, CNH Global gained the number one position in the agricultural sector and the number three position in the construction equipment sector.
Than added that CNH Global also holds the number one position in the light-to-medium construction equipment segment.
New Holland's and Case's product line strength, geographic sales distribution and business mix are complementary. In the North American agricultural market, for instance, Case focuses on the large production farmer. New Holland's niche is the livestock and dairy farmer.
Outside North America, New Holland leads the industry in Europe, and has a strong position in Brazil, Africa and the Middle East, Japan and Southeast Asia, while Case is well established in Latin America, Eastern Europe and the former Soviet Union.
The Joint Securitization Program
Prior to the merger, Case Capital had been active in the securitization market, having completed just under thirty transactions. Case Capital has been securitizing equipment receivables since 1992, generally doing two transactions per year. New Holland Credit came to market in November 1999 with a $1 billion offering, its first retail ABS transaction.
"We have a very strong history and will continue to leverage our combined portfolios," Than said.
He pointed to the strength of CNH Capital's underlying receivables.
"Our receivables have performed well, even during the downcycles within our industry," he noted. "In fact, some of our subordinated tranches have been upgraded by the rating agencies. This demonstrates that there's adequate enhancement from an investor's perspective."
Canadian Securitization
CNH Capital has had an established securitization program in Canada since 1992. The company has done between eight and nine transactions, securitizing roughly $200 million per year, however none of these deals has been publicly registered.
"They were not true public transactions," Than explained. "The Canadian market has only recently developed into a true public structure for ABS. It's certainly a structure we want to use going forward."
Moving forward, the company would like to explore the bullet payment structure.
"Our desire to move toward the bullet structure is driven by investor preference," stated Than.
Currently, CNH Capital's ABS transactions in Canada amortize over time, as opposed to a bullet structure, where the tranches within a deal pay off at a specific date.
What the Future Holds
"We will continue to strengthen the captive relationship we have with our Case and New Holland customers," said Than. "Our strategy is to help facilitate our company's equipment sales and better meet the needs of our existing customers by offering them a broader array of products and services."
CNH Capital's growth strategy also extends beyond the bounds of its captive relationship.
"We plan to continue to grow our business through geographic expansion, diversification into new industries and ongoing product development," stated Than. "The future looks bright for our business."
