North Mill Equipment Finance is preparing a $371 million asset-backed securities (ABS) deal, in which it will issue notes through the NMEF Funding 2022-A, a trust with better collateral characteristics than previous deals, although excess spreads are down slightly.
Truist Securities will be the initial note purchaser on the transaction, NMEF 2022-A. The trust is expected to repay noteholders through a subordination structure, according to Kroll Bond Rating Agency, which plans to issue ratings to the notes.
The rating agency expects to assign ratings ranging from ‘K1+’ to the $98.7 million, A-1 notes, and ‘AAA’ on the $189 million, class A-2 notes, to a rating of ‘AA’ on the $15.7 million class D notes.
North Mill Equipment Finance will service the notes, with GreatAmerica Portfolio Services Group, LLC acting as the backup servicer.
KBRA noted that the transaction, NMEF 2022-A, benefits from some improved credit characteristics, compared with previous transactions. For one, personal guarantors have a weighted average (WA) FICO score of 719, up from 712 in NMEF 2021-A. In terms of how the contracts are distributed by credit tier, that has also improved. The proportion of contracts in tier 1 and tier 2 has increased to 47%, from 25%, KBRA said.
The rating agency noted that the pool’s concentration of transportation-related collateral is 51%, up from 44%, owing to vocational truck increases.
“North Mill’s vocational truck originations historically have exhibited lower losses as compared to long-haul truck originations,” KBRA said in the report.
As for credit enhancement, the notes benefit from credit enhancement, overcollateralization, a reserve account and subordination, which are all consistent with NMEF 2021-A. The KBRA did note that the total hard credit enhancement is lower by 4.95% for the class A notes, and 2.35% for the class D notes.
As for the breakdown of equipment types by percentage in the collateral pool, KBRA noted that vocational accounts for 26.2% of the pool; medical represents 17.4% of the pool and construction accounts for 13.1%, accounting for the top three equipment types.
The collateral pool appears to be fairly diversified geographically. California is the largest state represented in the pool, accounting for 13.5% of the pool; Florida follows, with 10.8% of the pool; Texas follows with 9.2%; Georgia represents 6.6%; and North Carolina accounts for 4.4% of the pool balance, according to KBRA.
