Retail leases on new agricultural and construction equipment will secure $857.2 million in asset-backed securities (ABS) being offered to investors from the Kubota Credit Owner Trust, 2024-1.
Kubota Credit, U.S.A., which originated all of the contracts and sponsored the transaction, which has an aggregate contract balance of $1 billion on 26,538 contracts, and will act as servicer, according to Moody's Investors Service. Mizuho Securities is lead underwriter on KCOT 2024-1, which will issue all class A notes and repay them sequentially, the rating agency said.
The deal is slated to close on February 21, Moody's said.
The notes benefit from non-declining hard credit enhancement of 4.25%, Moody's said, which consists of overcollateralization equal to 3.75% of the original pool balance, and a fully funded reserved account of 0.50%. As long as the loans perform within expectations, those percentages of the initial pool balance will build over time.
KCAT's protections are just a few of a long list of positive credit characteristics, according to Moody's. For instance, all of the contracts will repay investors on a monthly basis, the obligor pool is very diverse, and the notes pay on the 15th of every month. The top obligor represents only 0.12% of the pool's total principal balance, and the top 10 obligors represent just 0.73%, as of the Dec. 31, 2023 cutoff date. Finally, after the top 10 obligors, none of the remaining obligors represent more than 0.05% of the pool's principal balance. Texas accounts for the largest state concentration, at 12.9%, followed by Florida, with 6.2% and Georgia with 5.1%, Moody's said.
Also, consumer obligors represent a slight majority of the pool, 54%, while loans to commercial obligors represent the remaining 46%, according to the rating agency.
"The consumer obligors are of high credit quality as as they are middle-aged, established homeowners with high incomes," ratings analysts wrote. On a weighted average (WA) basis, the loans have a FICO score of 741 as of the cutoff date. On a WA basis, the loans have an original term of 61 months, and a remaining term of 53 months, Moody's said.
Moody's assigns ratings of P1 to the A1 tranche and Aaa to the A2 through A4 notes. The A1, A2, A3 and A4 notes have legal final maturities of Feb. 18, 2025, Jan. 15, 2027, July 17, 2028 and Jan. 15, 2030.
