The DLLAA 2021-1, the second securitization from the joint venture AGCO Finance, is preparing to issue $1 billion in notes backed by payments on retail installment loans and lease contracts on new and used agricultural equipment.
De Lage Landen Finance, and AGCO Corporation are joint venture partners in AGCO Finance, says FitchRatings, which is rating notes in the DLLAA series for the first time.
DLLAA 2021-1 has several credit strengths, including equipment versatility, high seasoning and a low concentration of obligors, which counterbalances the high concentration of two asset categories in the underlying professional and lifestyle equipment pool, according to Fitch.
Credit Suisse is the lead underwriter.
Delinquencies and net losses of collateral originated by AGCO Finance and serviced by DLL Finance have been consistently low, according to Moody’s Investors Service, which placed an initial ‘Aaa’ rating on the A-2, A-3 and A-4 classes. Moody’s rated the most senior class P-1.
Similar to Moody’s, Fitch gave the A-2 through A-4 classes an initial rating of ‘AAA,’ and gave its ‘F1+’ to the most senior class.
Several aspects of the deal structure strengthen the credit outlook. Notes will be paid down sequentially, according to Moody’s. An initial overcollateralization of 4.45%, building to a target of 6% of the initial collateral balance and a cash reserve account of 1.25% add hard credit enhancement to the deal. Combined with the sequential-pay structure, Moody’s believes the deal will rapidly accumulate credit enhancement.
DLL Finance, the servicer on the deal, is strong and experienced — but lacks a rating, creating a key credit challenge to the pool, according to Moody’s.
While the initial outlook on the deal secured high ratings, Fitch pointed to concerns that the global recession in the first half of 2020 could ultimately be followed by a slower recovery in 2021. Under one scenario, Fitch applied a stress scenario to the notes assuming a halting recovery in 2021. Under that scenario, the notes could be downgraded by two or three rating categories.
