A pool of more than 8,800 contracts on agricultural and construction equipment will secure $774.1 million in securitized bonds from the John Deere Owner Trust 2025 trust, as the program pledges the smallest collateral pool to support the notes.
Most of the portfolio, 75%, is composed of contracts financing agricultural equipment, while slightly more than half of those loans and leases, 57%, are funding new equipment, according to Moody's Ratings.
Rating agencies raised several concerns about the underlying pool's impact on timely repayment of the notes, the first being its high exposure to agricultural equipment. Investors might notice that by year end 2024, total delinquencies as a percentage of John Deere's managed portfolio was 3.06%, an increase since 2022. That aligns with the decline in corn and soy prices that have been ongoing since 2022. This could easily pose a risk to a deal with a high exposure to a single industry, according to Moody's.
Mitsubishi UFG Securities is the lead underwriter on the deal, as well as manager, according to Asset Securitization Report's deal database.
Most of the notes pay a fixed rate, according to Fitch, except for the A2B notes, which are priced to the secured overnight financing rate (SOFR), Fitch said.
There are several credit enhancements that shore up credit to the notes, according to analysts, which includes Fitch Ratings.
Initial hard credit enhancements include excess spread amounting to 2.13% annually, Fitch said. Overall, the rating agency says JDOT 2025 had 3.50% in initial hard credit enhancement. Also, Fitch expects a 1.00% cumulative net loss, supporting loss multiples exceeding 5.0x for its triple-A ratings. Overcollateralization and a senior-subordinate repayment structure.
On a weighted average (WA) basis, the contracts have a remaining term of 55.7 months, and an average contract balance of $93,909.
Fitch assigns F1+ to the A1 notes and AAA to the A2 through A4 notes. Moody's, meanwhile, Moody's assigns P1 to the A1 notes; and Aaa to the A2 through A4 notes.
The A1 notes have a legal final maturity of March 16, 2026; the A2s mature on March 15, 2028; and the A3 and A4 notes mature on Sept. 17, 2029 and Feb. 17, 2032.