Equipment leases are collateralizing the $246.4 million asset-backed securities (ABS) deal, which will issue notes through the Encina Equipment Finance, 2022-1 trust.
The transaction is the first for Encina Equipment Finance, headquartered in Westport, Conn., since Benefit Stress Partners purchased a majority interest in the company in December 2021, according to a pre-sale report from Kroll Bond Rating Agency.
Encina Equipment, 2022-1, is different in several other ways, too. At closing the securitization will have a reserve account funded at 1.0% of the initial ADB, and is non-amortizing. On the previous deal, the Encina Equipment, 2022-1, the reserve account started at 1.25%, and was permitted to amortize to 1.0% of the initial ADB, beginning in month 25.
Total hard credit enhancement on the Encina Equipment, 2022-1, deal is higher for all classes of notes, with increases ranging from 2.5% to 5.3%. Excess spread, meanwhile, ranges from 1.9% to 5.6% per year, lower than the previous transaction, KBRA said. Overall, however, the rating agency said the deal’s credit enhancement remains consistent with its individual rating stresses.
KBRA expects to assign ratings of ‘AAA’ to the $119.8 million, A-1 and $60 million, A-2 notes, respectively; ‘AA’ and ‘A’ to the B and C notes, respectively and ‘BBB’ and ‘BB’ to the $21.2 million, D and $18.4 million, E notes, respectively.
The notes have legal final maturity dates that range from August 16, 2027 through April 15, 2030.
With a cutoff date of April 30, the pool consists of 153 contracts for operators in the manufacturing, transportation and warehousing, and healthcare and social assistance sectors—among other types of equipment.
BofA Securities, Truist Securities and Citizens Capital Markets are the notes’ initial purchasers, according to KBRA.
The top equipment types comprise about 60% of the portfolio by securitization value. Manufacturing equipment types represent 19.3% of the deal, by securitization value, according to KBRA. Other types include medical (13.9%), construction (12.8%), trucking (10%) and marine 6.1%), KBRA said.
Although the rating agency expressed concern about the credit quality of the obligors, because Encina’s target obligors generally have credit characteristics consistent with non-investment grade, some of that concern could be mitigated because Encina focuses on obligors with revenues in excess of $250 million, backed by private sponsors.
In one credit positive, Encina is an experienced servicer for its extant Encina Equipment Finance, 2021-1. As of the May 2022 payment date, the pool amortized to a 65% pool factor. The transaction has experienced no defaults and no delinquencies of 61-plus days past due. It had just one month with a 31-60 days past due delinquency throughout the life of the deal, KBRA said.
