Retail installment loan contracts on new agricultural and construction equipment will secure $727.3 million in asset-backed securities issued from the Kubota Credit Owner Trust, 2022-1.
Kubota Credit Corporation, U.S.A., will sponsor the deal, which is expected to have cumulative net loss (CNL) rates on its underlying pool, that are similar to the KCOT 2021-2’s collateral, according to a pre-sale report from Moody’s Investors Service. Loans to consumer obligors will comprise the majority of the obligors (57.8%), while commercial obligors will make up the rest (42.3%).
J.P. Morgan, Mizuho Securities and SMBC Nikko Securities America are lead underwriters on the transaction. The trust is expected to issue up to four sub-tranches of class A notes, which will be sized at 96.2% of the discounted pool balance, Moody’s said.
Initially, the notes have hard credit enhancement of 4.25%, and the notes benefit from enhancement in other ways, including overcollateralization and subordination at around 3.7%, the rating agency said.
KCOT 2022-1’s underlying pool contains 28,831 contracts, which have a remaining principal balance of $28,459. On a weighted average (WA) basis, the assets in the pool have an original term of 60 months; seasoning of six months and a FICO score of 740. The pool also has a statistical discount rate of 5.45%. Broken down by equipment type, agriculture accounts for 55% of the portfolio, with construction accounting for 37%, and turf 8%, Moody’s said.
Moody’s noted several strengths about the transaction, including a portfolio that is highly diversified by obligor. The top obligor represents just 0.06% of the total pool’s balance, while the top 10 obligors represent just 0.41% of the pool by outstanding balance.
While that aspect of the deal is a positive, Moody’s noted that KCOT 2022-1’s high concentration of construction equipment types is a potential challenge. The current level of construction equipment is also an increase from more recent KCOT transactions.
Moody’s says it expects to assign a rating of P-1 to the $128 million, class A-1 notes and ‘Aaa’ to the A-2 through A-4 notes.
