Kubota Credit to launch $ 640 million in equipment ABS
Kubota Credit Owner Trust, 2021-2, is set to issue $ 640 million in asset-backed securitization notes secured by installment payments on farm and construction equipment.
The bulk of the pool, 63.7%, is made up of new farm equipment, according to Fitch Ratings. The deal, also known as KCOT 2021-2, also includes new construction equipment, 30%, and new turf equipment, 6.2%.
MUFG Securities Americas is the primary underwriter of the transaction, which is sponsored and managed by Kubota Credit Corp. and other entities of Kubota North America Corporation, Fitch said.
Historically, losses on agricultural equipment are low, the concentration of 63.7% in the pool limits the diversification of the operation. However, what compensates for this problem is the diversification in three areas: geography, within the sector and versatility of equipment.
KCOT 2021-2 consists of 26,838 contracts, with an average balance of $ 26,987, Fitch said. The weighted average remaining contract duration is 54.48 months, somewhat longer than Fitch’s comparative trades. In addition, the contracts have a seasoning of 5.46 months, which is shorter than the seasoning of the comparative offers.
While blended diversification and other factors have raised credit questions, Moody’s Investors Service noted that the deal has had a recent and strong credit performance. The delinquency and cumulative net loss (CNL) rates have remained fairly stable. Additionally, although defaults and losses from Kubota Credit Corporation’s 2016-2020 inception vintages were relatively low, due to the increased concentration of construction and turf equipment in the pools, they were more higher than in previous years. Nine previous KCOT transactions have performed strongly, including during the COVID-19 outbreak.
In addition, Moody’s notes, the transaction is very diversified by debtor, with the main debtor only representing 0.05% of the total pool’s principal balance and the top 10 debtors representing only 0.33% of the balance.
Fitch plans to assign an F1 rating to the $ 144 million A-1 notes; and Moody’s will award P-1. The two rating agencies plan to assign “AAA” ratings to the $ 198 million A-2 Notes, the $ 223 million A-3 Notes and the $ 75 million A-4 Notes.