MassMutual Asset Finance is taking a rare second trip into the equipment finance asset-backed market within a single calendar year.
MMAF Equipment Finance LLC 2017-B is an $801.5 million pooling of large-corporate equipment loans and leases, including a large portion of federal agency contracts from the Washington, D.C., area.
Five tranches of senior Class A notes backed by 10% credit enhancement will be issued. Four are term notes with preliminary triple-A ratings from Fitch Ratings and Moody’s Investors Service; a money-market tranche carries the short term P-1 Moody’s and F1+ Fitch ratings.
All told, $725.35 million of notes are being offered; that leaves an overcollateralization amount equal to 9.5% of the pool balance. The notes are backed by 202 large contracts that average in excess of $3 million, doled out mostly to well-established large firms and entities supported by corporate credit ratings.
The is the 10th overall securitization for MMAF, and the second in 2017 – the first time since MMAF began securitizing loans and leases that it has issued dual transactions from its ABS shelf in a single year.
The transaction follows the company’s $1.12 billion deal earlier this year involving 383 contracts.
The second deal is being issued as MMAF’s managed portfolio of loans and leases has topped $6.2 billion as of Sept. 30. The contracts involve both loans (68.1%) and leases (31.9%) in the pool, most of which were originated by banks and financial institutions and later acquired by MMAF.
All of the contracts pay a fixed rate of interest.
The primary obligor is the U.S. government comprising 24.3% of the pool – lower than the concentration (33%) in the previous MMAF 2017-A transaction. Most of the contracts are for transportation equipment (31%), energy equipment (24.34%) and computers (8.25%).
Fitch noted MMAF has historically low default ratings on its equipment finance contracts.
Only $1 million of the $6.2 billion in contracts are in 90-plus-day default status; most defaults in MMAF transactions are attributable to federal procurement issues where payments are often slow to process, according to Fitch. Even in the cases of default, MMAF has historically strong residual value recovery over 100%, and has minimal exposure (2.4%) to contracts lacking residual support or guarantees by obligors or the original lenders.
Fitch found that under a stressed macroeconomic scenario, the pool could withstand up to 11.09% of cumulative net losses for the life of the contract before noteholders would potentially incur principal and interest losses.
JPMorgan is the lead underwriter on the transaction.