DBRS Confirms CNH Capital Canada Wholesale Trust, Series CW2009-1

As part of DBRS’s continued effort to provide market participants with updates on an annual basis, DBRS has today confirmed the ratings on the Series CW2009-1, Class A Notes (the Class A Notes) and Series CW2009-1, Class B Notes (the Class B Notes; collectively, with the Class A Notes, the Notes) issued by CNH Capital Canada Wholesale Trust (the Trust) at AAA (sf) and “A” (sf), respectively.

The ratings are based on the following factors:

(1) The high level of credit enhancement supporting the Notes, provided by minimum overcollateralization of 17.0%, cash of 3.5% (which builds to 4.375% during the accumulation period), initial yield reserve of 2.0% and additional seller’s interest of 7.0% for dilution. In addition, the Class B Notes provide additional support of 7.69% of the initial note issuance.

(2) Consistent monthly repayment rates from dealers averaging 24.9% since November 2009.

(3) Low annualized default levels since November 2009, averaging 0.1% of the pool balance.

(4) The funding of the portfolio with floating-rate notes continues to match the underlying interest cost base for the floating-rate-based receivables (currently 99.9% of the pool balance), eliminating the need for any interest rate mismatch hedging.

(5) Strong CNH Global N.V. (CNH) brand allegiance and support for the dealer network, evidenced by a strong history in Canada of a dealer network with minimal turnover.

(6) A well-diversified portfolio, with balanced geographic representation across Canada.

(7) The transaction has a backup servicer (Systems & Services Technologies, Inc.) in place. To provide sufficient funds to pay the backup servicer, the seller, CNH Capital Canada Ltd. (CNH Capital) deposited $500,000 into a segregated account upon closing and is required to make additional deposits as necessary to fund any shortfall.

Funding for the Trust on closing was provided by the issuance of $325.0 million of the Notes. The Notes are bullet bonds that pay interest monthly.

On closing, the proceeds from the sale of the Notes were applied by the Trust to make the initial deposit of $11.375 million to the reserve fund and the remainder was paid to CNH Capital in partial payment of the price for the receivables and the related collateral security pursuant to the Sale and Servicing Agreement. The receivables originated by CNH Capital were legally transferred from CNH Capital to the Trust as evidenced by true-sale opinions provided by CNH Capital’s counsel at closing.

Subsequent to closing, the Trust entered into an agreement on September 24, 2010, whereby it issued asset-backed notes Series CW2010-1. Although the noteholders of the Series CW2010-1 notes have a claim on the same pool of receivables as the Series CW2009-1 Noteholders, DBRS notes that there continues to be no impact on the ratings of the Series CW2009-1 Notes.

The receivables relate to advances made by CNH Capital, known as wholesale or floorplan financing, to CNH dealers in Canada to support their purchase of new and used agricultural and construction equipment and parts, to purchase equipment for their equipment rental business and to place equipment in the dealer’s rent-to-own program. The receivables bear interest at a floating rate based on the Canadian Deposit Offering Rate (CDOR). For certain products, interest-free financing is offered to the dealers for periods of up to six months. During these interest-free periods, CNH Canada (the manufacturing and selling arm) will be charged interest in lieu of amounts that the dealers would normally have paid. To protect against the risk that the rates charged to CNH Canada as manufacturer on the receivables reduce available spread and the risk that interest subsidies are promised but unpaid, CNH Capital provided a 2.0% yield reserve in the form of additional principal receivables, which may be increased to up to 9.0% at the discretion of the servicer. The interest subsidies paid by CNH Canada to CNH Capital are generally at the option of CNH Canada and may be terminated at any time. If CNH Canada or CNH Capital is unable or elects not to provide the assistance, the loss experience on the wholesale portfolio may be adversely affected.

Following closing date, the revolving period for the Notes commenced and will continue until the commencement of the accumulation period or early amortization period. During the revolving period, CNH Capital originates new receivables, which must meet the eligibility criteria to be added to the structure. On a daily basis, if the revolving period is continuing to the extent that the adjusted pool balance is greater than the required pool balance, the servicer will distribute to the seller the series share of principal collections. All new receivables added will be similar in nature to those included in the portfolio on closing.

The accumulation period is scheduled to begin six settlement dates prior to the scheduled final payment date of the Notes, currently expected in the December 2012 settlement period. However, depending on the performance of the receivables, the servicer may elect to lengthen or shorten the accumulation period to as little as one month. The decision to change the scheduled start of the accumulation period is at the option of the servicer and will be made in light of the payment rate of the receivables and other factors. During the accumulation period, the share of principal collections for the Notes will accumulate in the principal funding account for the purpose of repaying the outstanding principal amount of the Notes.

The Class A Notes bear interest at rates of one-month CDOR plus a fixed spread of 1.50% and the Class B Notes bear interest at rates of one-month CDOR plus a fixed spread of 5.75%. The receivables also charge a floating rate of interest based mostly on CDOR plus a spread. As the cost of funds for both the underlying assets and the Notes issued by the Trust are based on floating-rate indexes, which have historically maintained a consistent funding relationship and reset regularly, no hedging instruments were entered into. There is a small portion of fixed-rate receivables, exposing the Trust to interest rate mismatch. As of January 31, 2011, fixed-rate loans represent approximately 0.1% of the total portfolio. The structure limits the amount of fixed-rate loans in the portfolio to 2.5% of the pool balance. The yield reserve minimum of 2.0% hedges the very small portion of fixed-rate loans.

CNH Capital services the initial accounts and any additional accounts and automatic additional accounts in accordance with the credit and collection policies that are applied to its overall owned and managed portfolio of floorplan financing receivables.

Cash collected with respect to the receivables must be remitted to the Trust within two business days of processing by the servicer unless the following requirements are met:

(1) CNH Capital is the servicer.

(2) No servicer default has occurred and is continuing.

(3) CNH is rated at least A (low) by DBRS.

If these requirements are met, cash can be remitted to collection accounts on or before each distribution date and commingled for up to one month. DBRS partial-commingling criteria as outlined in the DBRS methodology “Legal Criteria for Canadian Structured Finance,” which can be found at www.dbrs.com under Methodologies, applies to this transaction since the servicer currently does not meet the rating threshold to permit full commingling. Based on the legal criteria referenced, partial commingling is permitted (i.e., remit collections required for the next distribution date) until one of the partial commingling conditions is breached. Following a breach that is not cured, no funds are permitted to be commingled and an early amortization event will occur. DBRS notes that the minimum threshold to meet commingling criteria is BBB (low).

For more detailed information on the transaction structure, please refer to the rating report of the Trust at www.dbrs.com or by clicking on the link below.

The performance and characteristics of the pool and the Notes are available and updated each month in the Monthly Canadian ABS Report (see Related Research below).

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Canadian Wholesale Floorplan Methodology, which is available on our website under Methodologies.