KCOT to issue $727.3 million in ABS

Retail installment loan agreements on new agricultural and construction equipment will secure $727.3 million in asset-backed securities issued by the Kubota Credit Owner Trust, 2022-1.

Kubota Credit Corporation, USA, will sponsor the deal, which is expected to have cumulative net loss (CNL) rates on its underlying pool similar to the 2021-2 KCOT guarantee, according to a pre-sale report from Moody’s Investors Service. Loans to consumer debtors will constitute the majority of debtors (57.8%), while commercial debtors will constitute the remainder (42.3%).

JP Morgan, Mizuho Securities and SMBC Nikko Securities America are the main underwriters of the transaction. The trust is expected to issue up to four sub-tranches of Class A bonds, which will be sized at 96.2% of the discounted pool balance, Moody’s said.

Initially, the notes have a firm credit enhancement of 4.25%, and the notes benefit from further enhancements, including overcollateralization and subordination of approximately 3.7%, the rating agency said.

The underlying pool of KCOT 2022-1 contains 28,831 contracts, of which the remaining main balance is $28,459. On a weighted average (WA) basis, the assets in the pool have an initial term of 60 months; six months seasoning and a FICO score of 740. The pool also has a statistical discount rate of 5.45%. Broken down by equipment type, agriculture represents 55% of the portfolio, construction 37% and turf 8%, Moody’s said.

Moody’s noted several strengths of the transaction, including a highly diversified portfolio by debtor. The top debtor represents only 0.06% of the total pool balance, while the top 10 debtors represent only 0.41% of the pool in terms of outstanding balance.

While this aspect of the deal is positive, Moody’s noted that KCOT 2022-1’s high concentration of construction equipment types is a potential challenge. The current level of construction equipment is also an increase over more recent KCOT transactions.

Moody’s plans to assign a rating of P-1 to the $128 million Class A-1 notes and “Aaa” to the A-2 through A-4 notes.

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