MassMutualAssetFinance is putting more of its business with Uncle Sam into its latest equipment lease and loan contracts securitization package.
MMAF Equipment Finance 2016-A is an $854.6 million collateralization of loans and leases for transportation, federal energy contracts, computers and software that MMAF has acquired in the secondary market from other financial services companies.
The transaction consists of five Class A tranches of notes with various maturities, and all granted preliminary ‘Aaa’ ratings by Moody’s Investors Service on Wednesday.
The short-term Class A-1 notes totaling $144 million are due May 2017, while $190 million in Class A-2 notes (the largest –sized tranche) is due 2018. The capital stack also includes $170 million in notes maturing in June 2020, Class A-4 notes totaling $180 million due 2023, and long-term Class A-5 notes due in 2032 that are sized at $91.6 million.
A $79.1 million tranche reserved for overcollateralization purposes is unrated.
Of the 354 loans/leases in the pool from 70 public and private obligors, the second- largest share (22%) of the collateral was from contracts for energy conservation equipment in federal buildings. That equipment includes motion sensors, automated temperature control devices, lighting retrofits, heating and cooling, boilers and water conservation measures, according to Moody’s.
The chunk of federal government contracts in the pool, which made the federal government the largest individual obligor, is well above the 12% share that the public sector loan and lease agreements comprised in MMAF’s last transaction in 2015.
Having such a large share of federal government contracts in the pool supports the pool’s credit strength because it is not subject to appropriation risk – but it can be vulnerable to budget and payment delays, or government shutdowns.
This is the eighth overall securitization of government and corporate equipment loan and lease contracts that MMAF has securitized since 2009. All of the contracts were originated by financial services companies serving as syndicators for MMAF.
MMAF securitizations have never experienced net losses since the company was founded in 2003 as a subsidiary of Massachusetts Mutual Life Insurance Company.
The notes will carry credit enhancement of 9.5%, but that level will grow over time as excess cash flows will be used to pay down notes. A companion reserve account (0.5% of the initial pool balance) will be non-declining.
MMAF acquires the loans and leases from a diverse group of corporate obligors and borrowers, most of whom are investment grade that keeps weighted average rating factors at very low-risk levels .
As of December 2015, MMAF had $4.88 billion in loan and lease assets under management through 1,611 contracts.