Nations Equipment Finance LLC (NEF) is shaving exposure to oil-and-gas equipment contracts in its latest asset-backed deal – but still has “relatively high exposure” to the risky field, according to a presale report from DBRS.

The Norwalk, Conn.-based commercial equipment lessor, which in two previous deals had up to 30% of its obligor pool comprised of drillers and gas-well operators, is marketing its new $170.1 million ABS with only 16.4% of the contracts related to leased or financed equipment for oilfield services and rigs. 

But NEF contracts for firms in oilfield services, drilling, exploration and production still represented 20.5% of the collateral backing the new issue, per DBRS, as the percentage of equipment-type collateral shifted to tractors, trucks, trailers and cranes. In total there are 128 equipment leases and loans to 62 obligors.

The deal, Nations Equipment Finance Funding III, Series 2016-1, is the NEF’s third securitization since it was formed six years ago by ex-GE Capital senior executives. The trust will issue $131 million of Class A notes provisionally rated ‘A3’ by Moody’s Investor Service and 'A' by DBRS, $11.06 million of Class B notes provisionally rated ‘Baa2’ by Moody's, and $9.36 million in Class C notes to be rated ‘Ba3’ by Moody's. (DBRS is not rating the subordinate notes). The target overcollateralization level is $18.7 million, or 11%. 

The Class A notes mature in 2021; both Class B and Class C notes mature in 2025.

NEF securitized its first portfolio of loans and leases totaling $153 million in June 2013, followed by a second deal in October 2014 totaling $173.1 million. The collateral for each of those deals was concentrated with the top five obligor industries at or near 60%. 

The mix of loans and leases in the latest deal is more diverse, with a lower percentage among the top five obligor fields (39.9%) as well as reduced comparative levels from the top 10 obligors of the aggregate contract total (41% in the new issue, vs. 43.2% in 2014 and 52.31% in 2013).

Drill rigs and oil field services equipment were each among the top five types of equipment leases backing the previous two deals. The most prevalent contract types backing the 2016 deal are for tractors (18.7% share of the notes outstanding), cranes (8.1%), machining centers (6.8%), and aircraft (6.5%).

U.S. Bank is serving as the custodian, and Wilmington Trust as the owner trustee for the obligations, per DBRS.

The fixed-rate monthly contracts average $1.33 million apiece, according to Moody’s, and were doled out primarily to middle-market obligors. Most of the underlying obligations are between 47 and 58 months, with the top five largest obligors representing 24.4% of the pool balance (6.7% to the single-largest obligor).

NEF, which provides equipment leasing and finance to small- and middle-market firms, is headed by two former GE Capital executives, CEO Phil Carson (the former head of its leveraged finance business) and chief risk officer Tom Fanelli. Fanelli held a similar position with GE. 

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