Loans and leases for agricultural and lifestyle equipment back $750M note issue from AGCO Finance

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The first issue in the series since 2021 has the potential to grow to $1 billion. 

The notes issued by DLLAA 2023-1 LLC will be backed by retail installment loan and lease sale contracts on new and used agricultural equipment originated by AGCO Finance. 

AGCO Finance is a joint venture between DLL U.S. Holdings Company (an indirect subsidiary of Coöperatieve Rabobank) and AGCO Corp. 

AGCO Finance is the originator of the assets backing the transaction. The receivables are serviced by wholly-owned DLL subsidiary, DLL Finance. This is the second issue from the series to be rated by Fitch Ratings, following DLLAA 2021-1. AGCO has demonstrated sufficient abilities as originator and underwriter, as has DLL as the servicer, Fitch said.

The lead underwriter is Barclays Capital.

According to Fitch, the collateral comprises 78.73% new and 21.27% used agricultural equipment. Professional equipment accounts for 80.18% of the pool and lifestyle equipment for 19.82%. The pool contains 18,888 contracts, with average balance of $42,927, for a total value of $810.8 billion. 

The contracts have a weighted average APR of 3.2%, 48 remaining months, and seasoning of 17 months, according to Fitch. The principal amount of the notes may be upsized from $750 million to $1 billion, the rating agency said.

The transaction will be the third securitization sponsored by AGCO Finance, and the first since DLLAA 2021-1, which issued $1 billion of notes backed by a larger pool of 31,526 contracts and lower average contract balance of $33,558.

According to Moody's Investors Service, at closing, the class A notes will benefit from 8.25% of hard credit enhancement (as a percentage of the initial pool balance). Hard credit enhancement will consist of initial over-collateralization of 7.50%, with a target of 9.50% of the initial collateral balance and a cash reserve account of 0.75%. Excess spread may also be available as additional credit protection for the notes. The transaction's sequential payment structure and the over-collateralization target will result in a build-up of credit enhancement.

Moody's cumulative net loss expectation for the DLLAA 2023-1 collateral pool is 0.75% and the loss at an Aaa stress is 10% (inclusive of 6.25% credit loss and 3.75% residual value loss).

The notes benefit from excess spread, expected to be 2.47% per annum, higher than 5.7% for 2021-1, Fitch said.

Fitch expects to assign an F1 rating to class A-1, and AAA to A-2, A-3 and A-4. Moody's expects to assign a P-1 rating to class A-1 and Aaa to classes A-2, A-3 and A-4.

The legal final maturity dates for the notes range from August 2024 for the Class A-1 notes to October 2031 for the A-4 notes.