A collateral pool of majority loans and leases on light industrial and office equipment will provide collateral for $673.6 million in asset-backed securities (ABS), coming to market through M&T Equipment, series 2025-LEAF1.
The deal, from sponsor LEAF Capital Funding, is expected to close this week, according to Moody's Ratings. The deal will sell notes through four tranches of notes, A1, A2, A3 and A4, all of which have total hard credit enhancement representing 18.85% of the pool balance. Credit enhancement also includes a reserve account equaling 0.50% of the pool balance.
Moody's also notes that the A1, A2, A3 and A4 notes have legal final maturity dates of May 18, 2026, Dec. 16, 2027, Sept. 17, 2029 and March 16, 2032, respectively.
Aside from the reserve account, credit enhancements that keep cash flowing to the notes include subordination, Moody's said.
The rating agency also assigns P1 to the A1 notes, and Aaa to the A2 and A4 notes. S&P Global Ratings, according to Asset Securitization Report's deal database, assigned ratings of A1+ to the A1 tranche, and AAA to the A2 through A4 notes.
There are 22,704 contracts in the collateral pool, which lends itself to high diversification. The top 5 obligors account for 0.4% of the pool. Loans make up most of the contracts, 55.8%, followed by finance lease and true lease contracts, 7.6% 36.6%, respectively.
The contracts have a weighted average original term of 54 months, with 49 remaining, the rating agency said.
Contracts financing industrial equipment representing the largest portion, 29.0%. After that, and completing the top five types of equipment, the pools is composed of office equipment, computers, software and restaurant equipment, which represent 28.6%, 8.6%, 8.6% and 4.8%, respectively.
As for how the contracts are distributed by state, California has the largest concentration, with 9.4%, followed by Texas and New York, with 8.6% and 8.4%, respectively.
One drawback that Moody's noted was the deal's exposure to small-and medium-sized businesses. Companies on this scale are more vulnerable to poor performance and default in an economic downturn, Moody's said. But there are mitigating factors, including that the equipment being financed is considered essential, so borrowers are likely to prioritize payments on them.
