Kubota Credit Owner Trust, 2021-2, is poised to issue $640 million in asset-backed securitization notes secured by installment loan payments on agricultural and construction equipment.
Most of the pool, 63.7%, consists of new agricultural equipment, according to Fitch Ratings. The deal, also known as KCOT 2021-2, is also comprised of new construction equipment, 30%, and new turf equipment, 6.2%.
MUFG Securities Americas is the lead underwriter on the transaction, which is being sponsored and serviced by Kubota Credit Corp., and other entities under the Kubota North America Corporation, Fitch said.
Historically, losses on agricultural equipment has been low, the 63.7% concentration in the pool does limit the transaction’s diversification. What offsets that issue, however, is diversification across three areas: geography, within the sector and equipment versatility.
KCOT 2021-2 consists of 26,838 contracts, with an average balance of $26,987, Fitch said. The weighted average remaining term on the contracts is 54.48 months, a bit longer than Fitch’s comparative transactions. Also, the contracts have a seasoning of 5.46 months, shorter than the seasoning on the comparative deals.
While mixed diversification and other factors raised credit questions, Moody’s Investors Service noted that the deal has had recent and strong credit performance. Delinquency and cumulative net loss (CNL) rates have been fairly stable. Also, while delinquencies and losses of Kubota Credit Corporation’s 2016-2020 origination vintages have been relatively low, because of increased concentration of construction and turf equipment in the pools, they have been higher compared with previous years. Nine prior KCOT transactions have turned in strong performances, including during the COVID-19 outbreak.
Also, Moody’s notes, the deal is highly diversified by obligor, with the top obligor accounting for only 0.05% of the total pool’s principal balance, and the top 10 obligors representing only 0.33% of the balance.
Fitch plans to assign an F1 rating to the $144 million A-1 notes; and Moody’s will assign P-1. Both rating agencies plan to assign ratings of ‘AAA’ to the $198 million A-2 notes, the $223 million A-3 notes, and the $75 million A-4 notes.
