Agricultural and equipment finance company Kubota Credit is preparing to close out the first quarter with a $722 million securitization of fixed-rate retail installment contracts.
The 25,680 contracts underpinning the current transaction represent $853.2 million in receivables, according to Moody's Investors Service, which intends to assign ratings to the notes. Compared with previous deals, Kubota Credit 2023-1's collateral pool is only slightly less diversified, both in terms of obligor concentrations and the types of equipment that end users are leasing.
The rating agencies Moody's and Fitch Ratings list Mizuho Securities, J.P.Morgan Securities, and SMBC Securities America as lead underwriters on the deal.
For instance, Kubota Credit 2023-1 has higher concentrations of obligors and
higher percentages of both agricultural and construction equipment, Moody's said. For practical purposes these shift are almost immaterial, as the top obligor accounts for only 0.2% of the outstanding balance, while the top 10 obligors represent just 0.6%, according to Moody's. The pool is still highly diversified.
None of these slight differences appear to impact the notes' credit. Fitch notes that the pool remains strong, with a weighted average (WA) average FICO score of 738 for the 69% scored portion. Agricultural equipment—that is almost exclusively new—makes up 51.9% of the pool, and is historically the strongest performing collateral type. Another 42.2% of the pool consists of construction equipment, and turf accounts for 5.9%. This mix gives the 2023-1 deal the program's lowest agricultural concentration to date, Fitch said.
Notes benefit from hard credit enhancement on the class A notes, amounting to 4.25%, Fitch notes. This is consistent with three of Kubota Credit's previous transactions, and lower than that of other transactions since 2020, the rating agency said. That level of hard credit enhancement can support a 5.0x multiple for expected ratings of 'AAA', Fitch said.
Other forms of credit enhancement include a 0.50% reserve account, 3.75% initial overcollateralization and a cash reserve account.
Fitch Ratings intends to assign ratings of 'F1+' on the $142.9 million, A-1 notes; and 'AAA' on the A-2 through A-4 notes. Moody's assigns 'P-1' to the A-1 notes, and similarly 'Aaa' through the rest of the deal.
The notes have maturities ranging from March 15, 2024 through Feb. 15, 2029.
