The Volvo Financial Equipment LLC (VFET), Series 2019-2, brings to market ABS notes, backed by trucking and construction equipment loans, categories that analysts view as solid performers outside of severe macroeconomic pressures.
As of Sept. 30, VFS, the originator of the loans, reported that construction equipment made up 27.7% of its managed portfolio, and large/medium truck fleets made up 37.6%. After those two segments, the rest of the managed portfolio is fragmented, and includes such assets as truck dealer term loans (11.3%) and truck owner/operator (4.9%), according to a breakdown from Moody’s.
Fitch Ratings and Moody’s both assigned preliminary ratings to the deal. Among ratings drivers is the managed portfolio’s historical response to economic conditions. For instance, the performance of VFS’ managed transportation portfolio deteriorated from 2007 to 2009, Fitch said, coinciding with the financial crisis-induced economic downturn.
Since then, the portfolio has experienced some smaller cycles of softening and normalization. Taking all of this into consideration, Fitch said that its base case cumulative net loss proxy of 2.05% for 2019-02, consistent with the issuer’s previous deal, the Volvo Financial Equipment LLC, Series 2019-1.
Fitch did note one aspect of the portfolio that could be more positive: It was a challenge to derive credit net losses on the dealer term-loan segment, because it had not experienced any net credit losses over 13 years of origination history.
Dealer term-loans have performed well in the managed pool and securitizations, so Fitch believes that additive stress in the analysis is no longer warranted. The medium-large fleet segment has exhibited strong performances and consistent underwriting, so Fitch used the 2006-2009 vintages to come up with a gross-default expectation for the dealer term-loan segment, which is 11.15%.
Fitch assigned the following ratings to the VFET, Series 2019-2: ‘F1+’ to the A-1 class; and ‘AAA’ to the A-2, A-3 and A-4 classes; ‘AA’ to the B class and ‘A’ to the C class.
For its part, Moody’s assigned ‘P-1’ to the A-1 class; ‘Aaa’ to classes A-2, A-3 and A-4; ‘Aa2’ to class B and ‘A2’ to class C. Moody’s also noted an overcollateralization class, amounting to $17.16 million, but assigned no rating to it.
