With record tariffs mounting, North Mill Equipment LLC is sponsoring a $582 million equipment securitization that has significant exposure to the truck and transportation industry, a sector already facing challenges that tariffs could exacerbate.
Split into six classes of securities, the North Mill Equipment Finance LLC, Series 2025-B offering securitizes fixed-rate loan and lease contracts secured primarily by new and used medical, trucking and other transportation equipment, and construction equipment. The deal, led by BofA Securities, Deutsche Bank Securities and Truist Securities, represents the company's 10th transaction backed by similar collateral and its second one this year.
"Key credit challenges include a relatively small and low durability sponsor and servicer, relatively weak collateral performance and obligor credit quality, limited historical data, a high exposure to trucking and transportation equipment," according to Moody's Ratings in a July 31 presale report.
The rating agency said that North Mill's relatively weak credit quality increases the likelihood of bond payment disruptions, although its backup servicing arrangement with GreatAmerica Portfolio Services Group mitigates that risk. In addition, North Mill's historical delinquency and net loss rates of contracts are higher than competitors', a risk partially offset by more diverse collateral in terms of equipment type.
Moody's also pointed to North Mill's high exposure to the truck and transportation industry, the performance of which is tied to the health of the overall economy.
"Although recession risks continue to recede, trucking and small business equipment obligors continue to face financial pressure amid high interest rates and tight bank lending, in addition to challenging spot rates and enacted and potential tariffs," Moody's said.
After announcing base tariffs of 15% on major trading partners including the European Union and Japan, the Trump administration raised tariffs on Canadian imports to 35% starting August 1 and is still negotiating with Mexico, the U.S. two largest trading partners.
"The weaker collateral performance of trucking and transportation equipment contracts in this transaction is mitigated by higher diversity of equipment type [compared to prior North Mill securitization pools] and around 13 percentage point increase in the share of higher credit quality obligors," Moody's said.
That rating agency noted key credit strengths of the deal as North Mill's experience as a sponsor and servicer, the granular and more seasoned collateral pool compared to the $457 million ABS deal it closed in March, a detailed underwriting process, and a structure that pays the notes sequentially, according to class.
