A pool of agricultural and construction equipment leases will serve as collateral for a $1.2 billion issuance of asset-backed debt from the John Deere Owner Trust, 2023-C, which could be upsized to as much as $1.5 billion.
Coming off of a period through July 2023 when default and recovery rates showed improvement, the trust's managed pool and term ABS transactions stayed below peak historic levels, according to ratings analysts from Fitch Ratings.
The transaction will issue four classes of notes to investors, according to the Asset Securitization Report's deal database. The coupon on the notes has yet to be determined, but they have legal final maturities ranging from Sept. 16, 2024 through Aug. 15, 2030. JDOT 2023-C, as the deal is known, has initial hard credit enhancement of 3.50%, which is unchanged from prior transactions, while initial excess spread is expected to be 2.03% per annum, Fitch said. The rating agency noted that with a cumulative net loss (CNL) of 1.00%, the deal structure can support loss multiples of more than 5.0x for 'AAA' ratings.
Sound management and consistent collateral performance add to JDOT's potential for strong credit performance, according to Fitch.
RBC Capital Markets is the lead underwriter on the deal, according to Fitch, while ASR's database notes that Barclays, Citigroup Global Markets, Credit Agricole Securities, Mitsubishi UJF Securities, RBC Capital Markets and TD Securities have all been listed as managers.
Moody's Investors Service also notes that the deal has a strong transaction structure, where credit enhancement will consist of overcollateralization of 2.50%, of the initial discounted pool balance, plus a fully funded, non-declining reserve account of 1.00% of the initial discounted pool balance.
One potential credit drawback is that 25% of the pool finances construction equipment loans.
"The soft housing market and new home construction, weakens construction obligors' finances and reduces overall demand for construction equipment and equipment values," Moody's analysts wrote.
Moody's expects to assign ratings of 'P-1' to the A-1 notes, and 'Aaa' to the A-2 through A-4 notes, whether the deal is upsized or not. As for Fitch, the company expects to assign 'F1+' to A-1, and 'AAA' to the A-2 through A-4 notes.
