VFI ABS 2022-1 is preparing to tap the capital markets for $170.8 million in asset-backed securities. A pool of contracts on industrial and commercial equipment, which had a pool balance of $150.4 million as of will secure the notes.
This is the first ABS transaction from Varilease Finance, the deal’s sponsor. Headquartered in Salt Lake City, Varilease is an independent equipment finance company on leasing industrial and commercial equipment to upper- and middle-market businesses. The company’s transaction sizes range from $500,000 to $25 million, with an average transaction size of around $2.3 million.
The total collateral might increase by as much as $25 million through the addition of equipment contracts during a three-month prefunding period, according to Kroll Bond Rating Agency, which plans to issue ratings to the notes.
The transaction, VFI 2022-1, will issue four classes of notes, to which KBRA expects to assign ratings ranging from ‘AAA’ on the $141.6 million class A notes to ‘BB’ on the $5.7 million, class D notes, KBRA said.
Keybanc Capital Markets will be the initial note purchaser. The trust will repay the noteholders on a sequential basis. The notes benefit from subordination, overcollateralization, a reserve account, and a cumulative net loss trigger provision to ensure that the trust continues to perform well in repaying noteholders, KBRA said.
The reserve account holds an amount equal to about 1.5% of the note balance; it is non-amortizing, and therefore grows as a percentage of the pool balance over time. Overcollateralization is subject to a target level of 5.6% of the current pool balance, and it prevents leakage of excess spread, according to KBRA.
The underlying pool has 68 obligors, and is diversified by industry category. The manufacturing sector represents the largest category of underlying assets, 20.5%, by the percentage of the aggregate discounted receivable balance. Food processing follows, accounting for 11.5% of the assets; oil and gas equipment, accounts for 10.9%; and construction, with 9.8%.
The top five obligors represent 20.7% of the pool balance and obligor headquarters also diversifies the pool. Obligors based in California account for the largest percentage of headquarters, 7.3%, followed by Texas, with 7.1% and New York, with 6.8%. Oregon and Colorado round out the top five, with 5.0% and 4.7%, respectively.
On a weighted average (WA) basis, the loans have 44 original scheduled payments, with seasoning of 11 months.
