DBRS Finalizes Provisional Ratings to CIT Canada Equipment Receivables ULC Series 2012-1 Asset-Backed Notes

DBRS has today finalized the following provisional ratings to CIT Canada Equipment Receivables ULC Series 2012-1 (CCERT):

– AAA (sf) to the Class A-1 Asset-Backed Notes (the Class A-1 Notes)
– AAA (sf) to the Class A-2 Asset-Backed Notes (the Class A-2 Notes)
– A (sf) to the Class B Asset-Backed Notes (the Class B Notes)

On closing (July 19, 2012), CCERT issued the above Notes secured by a portfolio of fixed-rate loan and lease receivable commercial contracts (the Portfolio of Assets) financing transportation, construction, technology and office equipment, which were originated by CIT Financial Limited (CIT Canada). The Class A-1 Notes and Class A-2 Notes (collectively, the Class A Notes) and the Class B Notes (collectively, with the Class A Notes, the Notes) are pass-through securities, with monthly payment of interest and principal based on actual cash flows from the Portfolio of Assets.

Principal on the Notes will be repaid sequentially, with the Class A-1 Notes being paid prior to repayment of any principal on the Class A-2 Notes and the Class A-2 Notes being paid prior to repayment of any principal on the Class B Notes. Interest is paid monthly to the Class A Notes on a pari passu basis followed by payments of interest to the Class B Notes. Each of the Class A Notes are rated AAA (sf) and the Class B Notes is rated A (sf), based on full repayment of the Notes by their respective legal final maturity dates.

The ratings incorporate the following considerations:

(1) The significant experience of CIT Canada and its U.S. parent CIT Group Inc. in the origination and servicing of equipment loans and leases. This experience includes a successful track record in the issuance and management of securitization programs in Canada, including, most recently, the fully repaid CCERT 2008-1 and CCERT II 2009-1 transactions, notwithstanding a difficult and challenging period in the parent’s history.

(2) The high levels of initial credit enhancement relative to recent CIT Canada portfolio performance provided by a non-amortizing Cash Spread Account of 3.25%, subordination to the Class A Notes of 6.0% and excess interest rate spread estimated to be 5.62% at closing.

(3) A long track record of detailed static loss performance separated by the technology and office equipment and the transportation and construction business segments, providing significant data to assess and estimate base case loss assumptions for each segment in the proposed pool.

(4) A diverse and well-seasoned portfolio from an obligor, industry and geographic concentration perspective. Additionally, there is no residual value exposure included in the pool of assets.

(5) Comprehensive Eligibility Criteria including a limit of 1.50% of the pool balance with respect to obligor concentrations and a limit of 70 months on the weighted-average remaining term to maturity.

(6) Performance guarantee provided by CIT Canada’s parent, CIT Group Inc.

A conservative base case loss assumption, which incorporates loss estimates by major asset segments, as well as assumptions including replacement servicer fees and large increases in delinquency and credit losses, was used in the stress testing. The results of the analysis indicate that credit enhancement provides sufficient protection to the Notes to warrant the ratings assigned.

Notes:
The applicable methodologies are Rating Canadian Equipment Finance Securitization (April 2011) and Legal Criteria for Canadian Structured Finance (November 2010) which can be found on our website under Methodologies.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.