Kubota Credit Corp., the finance arm of Kubota Tractor Corp., is marketing $600 million of bonds backed by loans to acquire agricultural, construction, and turf equipment.
The transaction consists of four classes of notes, a money market tranche and four term tranches rated ‘AAA’ by Fitch Ratings. The class A-1 notes mature in August 15, 2017, the class A-2 notes in April 2019; the class A-3 notes in July 2020, and the class A-4 notes in October 2022.
MUFG Securities Americas is the lead underwriter.
Among the key ratings drivers cited by Fitch in its presale report is the quality of the receivables: The 78% of obligors with FICOs have a weighted average score of 741. The remaining 22% of obligors lack FICOs because the loans were made to corporations, not individuals.
In addition, over 80% of the asset pool consists of new agricultural equipment, which is historically the strongest performing collateral type. The remainder is construction equipment. That’s consistent with the two previous transactions, completed in 2014 and 2015. Fitch found that recovery rates for all types of equipment dating back to 2009 ranged from 55% to 80%.
The transaction also benefits from geographic diversity of contracts in the pool. The top five geographic contract concentrations (in Texas, New York, Pennsylvania, and Alabama) only account for 27.27% of the pool. This percentage is consistent with previous transactions.
The biggest challenge to the transaction is the interconnected aspects of the deal. Specifically, a bankruptcy for the parent might invoke a service transfer for the subsidiary.
Kubota Credit Corporation has displayed consistent and low delinquencies and net losses since 2008, with repossessions and net losses highest in 2009.
