John Deere is preparing its second securitization of equipment loans of 2016, according to Fitch Ratings.

The deal, John Deere Owner Trust 2016-B, will issue $774.57million of notes: a $243.6 million tranche of money market notes and three other senior tranches totaling $511.6 million with preliminary ‘AAA’ ratings from Fitch. All four tranches benefit from 3.5% credit enhancement.

There is also a $19.36 million tranche of unrated certificates.

The notes are backed by U.S. retail instalment sale and loan contracts secured by new and used agricultural and construction equipment.

The loans were originated and will be serviced by subsidiaries of John Deere.

The transaction is “fully sequential,” the class A notes receive 100% if the principle distribution amount to be paid in full. No principle will be paid to any class until the class below is paid entirely.

Among the key risks to the deal, according to Fitch, is the high concentration of agricultural loans, which account for three quarters of the total. This makes the collateral highly exposed to declines in commodity prices, weakened demand in the real estate sectors, and adverse weather.

 However, the rating agency noted that all of John Deere’s transactions since 2011 have had similar concentrations of agricultural loans. And these loans have a history of low losses.

Also, this deal is more geographically diverse, which might counter the lack of asset diversity. The highest geographic concentration of loans is in Texas (11.23%), flanked by Iowa, Illinois, Nebraska, and California with percentages under 6%.

No other state accounts more than 3.84% of the pool, consistent with the past two deals.  

Although the performance of the deals John Deere completed in 2015 and 2016 has been strong, Fitch expects delinquencies and losses to remain higher relative to 2010-2014 transactions. In particular, agricultural sector sales are predicted to decline in 2016, due to lower commodity prices. 

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