Weaker commodity prices could impact the performance of John Deere's latest securitization, which is highly concentrated in agricultural equipment leases.
The deal called John Deere Owner Trust 2015-B pools mostly leases that finance farm equipment. Although historical losses for these leases have been low, Fitch Ratings is concerned that farm income could be negatively impacted if commodity prices remain low for an extended period of time.
This risk is exacerbated by the high concentration of agricultural equipment leases, which account for 75% of the pool, although the geographic diversity of obligors and diversity of types of agricultural equipment help mitigate this concern.
Fitch expects cumulative net losses on the issuer's agricultural portfolio to marginally increase from the historical lows over the past several years. John Deere has tapped the securitization market for funding once or twice a year since 2003; its outstanding transactions, which were printed between 2012 and 2014, have experienced cumulative net losses in the range of just 0.01%−0.14% to date. Based on these losses, the 2015-B pool composition could suggest losses of 0.70%−0.80%. However, Fitch is forecasting a base case net loss of 1.00%, which the rating agency said "is warranted, considering "the effect of weak recovery values on potential losses". On offer under the 2015-B capital structure are $770.2 million of securities. RBC Capital Markets is the lead underwriter.Fitch assigned F1+’ ratings to $228 million of class A1 note that are due September 2016 and AAA’ ratings to $523 million of class A notes on offer. The class A note will be offered over three tranches with varying maturity dates: the class A2 notes mature on June 2018, the class A-3 notes mature on October 2019 and the class A-4 notes mature on June 2022. Initial hard credit enhancement (CE) for JDOT 2015-B is 3.50%, similar to the issuer’s first transaction of 2015, JDOT 2015.
