Kubota Credit raising $770M on agricultural, construction and turf equipment

Kubota Credit Owner Trust 2023-2 (KCOT 2023-2) is coming to the market to raise $770.6 million backed by a pool of retail installment loans secured by new agricultural, construction and turf equipment.

Kubota Credit Corp., U.S.A. (KCC), a 90%-owned subsidiary of Kubota North America Corp., which is wholly owned by Kubota Corp., originated the loan contracts and will be the sponsor and servicer of the pool to be securitized. KCOT 2023-2, which comprises four classes and closes on July 26, is KCC's second ABS transaction of 2023.

Kubota Credit Receivables is the seller, and J.P. Morgan Securities, Mizuho Securities USA and SMBC Nikko Securities America are the lead underwriters, according to Moody's Investor Service.

According to the Asset Securitization Report deal database, the A-1 notes have a coupon of 5.927%, the A-2 notes have a coupon of 6.02%, the A-3 notes have a coupon of 5.62%, and the A-4 notes have a coupon of 5.61%.

Moody's says the 27,048 contracts underlying the transaction represent $949.4 billion of receivables with an average remaining contract balance of $35,101 and a weighted-average FICO score of 739. At 41.73%, the proportion of obligors without FICO scores due to their loans being underwritten based on commercial standards, is elevated compared with recent KCOT transactions, it says.

The collateral pool to be securitized contains retail installment to consumer obligors, accounting for 50.41% of the pool balance, while loans to commercial obligors make up the remaining 49.59%. The consumer obligors are of high credit quality as they are generally middle-aged, established homeowners with high incomes, Moody's says.

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KCC demonstrates adequate abilities as an originator, underwriter and servicer as evidenced by its managed portfolio's historical delinquency and loss performance, says Fitch Ratings.

Compared with March 2023's KCOT 2023-1 transaction, the KCOT 2023-2 collateral pool has a lower proportion of turf equipment and agricultural equipment and a higher proportion of construction equipment, Moody's says. The proportion of construction equipment in the pool is the highest compared to other KCOT transactions. Historically, the performance of construction equipment contracts has been weaker and more volatile than the performance of agricultural equipment contracts, Moody's notes. However, geographic diversity, diversification within the construction sector and equipment versatility help to mitigate the high concentration, Fitch says.

Credit enhancement on the class A notes include an initial overcollateralization of 3.75%, a reserve account of 0.50% of the initial note value, and expected excess spread of 2% per annum, Fitch says.

Fitch has provisionally assigned F-1 to the A-1 notes and AAA to the A-2, A-3 and A-4 notes. Moody's has provisionally assigned P-1 to the A-1 notes and Aaa to the other notes.