If President’s Day is near, a John Deere Capital Corp. securitization must be in the works.
For the third consecutive year, the captive finance credit unit of farm equipment manufacturer/dealer John Deere is choosing February to launch an asset-backed securitization of agricultural and construction equipment retail loans it originates and services.
John Deere Owner Trust 2017 is a $758.64 million transaction featuring four classes of fixed-rate Class A notes, similar in structure to previous deals including its $756 million JDOT 2016 and $995.8 million JDOT 2015 transactions that also were placed into the market from the mid- to late-February timeframe.
According to presale reports released Thursday by Fitch Ratings and Moody’s Investors Service, JDOT 2017 includes a $240 million Class A-1 one-year money-market tranche; $218 million in Class A-2 notes due October 2019; Class A-3 notes totaling $225 million due April 2021; and a $75.64 million tranche of Class A-4 notes due December 2023.
Each of the multi-year note tranches will carry expected triple-A ratings from Fitch and Moody’s, while the short-term notes carry a preliminary ‘F1+’ structured finance rating from Fitch, and a similarly top-level ‘P-1’ short-term rating from Moody’s.
All of the notes have initial 3.5% credit enhancement support. That is unchanged since the firm’s second securitization in 2016 (JDOT 2016-B), but Fitch expects initial excess spread in JDOT 2017 to be just 1.88%, down from the 2.11% level from last year. The interest rates on the notes are to be determined, according to Fitch.
The notes are backed by 17,488 sales and retail loans made to prime borrowers (weighted average FICO score of 760) with a contract value of $812.3 million, or an average balance of $46,453 per contract. The weighted average APR is 2.45% on the loans that average 55 months. Most of the loans are over a year old, with average remaining terms of 41 months.
For each of the last five years, JDDC has structured two ABS transactions annually featuring its retail sales contract receivables. This is the 28th overall JDCC securitization since 1992.
According to Moody’s, 61% of the ag contracts are structured with annual payment terms, and the construction equipment on a monthly payment schedule.
The transaction’s collateral pool consists primarily of agricultural equipment (75%), a structure consistent with JDOT transactions dating back to 2011.
According to Fitch, existing JDOT transactions continue to exhibit net loss levels below that of peak historical levels, but have had “slight weakening” in recovery rates in both agricultural and construction segments for 2015 and 2016 transactions.
Bank of America Merrill Lynch is the lead underwriter.