Volvo is marketing its eighth term securitization of U.S. loans and leases for its heavy-duty commercial trucking and construction equipment.
The $750.4 million Volvo Financial Equipment Series 2018-1 will issue a $193 million money market series and three tranches of Class A term senior notes of varying maturities totaling $513.9 million.
All of the senior notes are supported by 11.25% credit, and carry preliminary triple-A ratings from both Moody’s Investors Service and Fitch Ratings. The deal also includes and subordinate B ($20.2 million) and C ($23.3 million) notes classes.
The notes are secured by loans (of which 82.5% were contracts for trucking equipment) that were originated and remain serviced by deal sponsor VFS US, a subsidiary of Swedish vehicle manufacturer AB Volvo. VFS’ previous deal was in February 2017.
All loans were issued through Volvo and Mack brand dealers, and pooled in the shelf platform VFS has used since 2010. (Volvo also securitizes the floorplan financing provided to its network of Volvo and Mack brand dealers.)
The credit characteristics of the 2018-1 pool are largely unchanged from those of Volvo's previous deal: There are 4,150 loans with an aggregate contract balance of $775.2 million, consisting 82.5% of trucking contracts and 17.5% of construction equipment.
Most of the equipment is new, financed at original terms of 56 months. The average loan balance is $186,804 at a 4.98% interest rate.
Moody’s expects net losses over the life of the deal to be 1.5%. Fitch has modeled its analysis with a cumulative net loss (CNL) proxy of 2.3% sufficient to cover its AAA rating criteria.
Both agencies cited low delinquency and net loss levels since 2010 in the $4.9 billion managed portfolio, which had delinquencies fall to 1.55% from 2.42% in 2016.
CNLs have ticked up in the 2015-1 and 2016-1 transactions, but Moody’s reports that VFS has mitigate some risk by expanding truck loans beyond the transportation sector into manufacturing.
JPMorgan is the lead underwriter.