DBRS Assigns Provisional Ratings to CNH Capital Canada Receivable-Backed Notes, Series 2014-1

DBRS has today assigned the following provisional ratings to the CNH Capital Canada Receivable-Backed Notes, Series 2014-1, issued by CNH Capital Canada Receivables Trust (CNH CCRT or the Trust):

-- AAA (sf) to the Class A-1 Receivable-Backed Notes, Series 2014-1 (the Class A-1 Notes)
-- AAA (sf) to the Class A-2 Receivable-Backed Notes, Series 2014-1 (the Class A-2 Notes)
-- A (sf) to the Class B Receivable-Backed Notes, Series 2014-1 (the Class B Notes)

On closing, the Trust will acquire a portfolio of retail installment sales contracts secured by new and used agricultural and construction equipment (the Portfolio of Assets) originated entirely in Canada. The Class A-1 Notes and the Class A-2 Notes (collectively, the Class A Notes or the Senior Notes) and the Class B Notes (collectively, with the Senior Notes, the Notes) are structured as sequential pass-through securities with principal and interest paid on a monthly basis from collections on the Portfolio of Assets.

The provisional ratings incorporate the following considerations:

(1) Obligors
A diverse portfolio of obligors, mainly from the agricultural (AG) sector. CNH Capital’s obligor profile has demonstrated consecutive years of exceptionally strong repayment history from a delinquency and loss perspective. The long track record of detailed static loss performance on the AG and construction equipment (CE) sectors provides significant data to assess and estimate base case loss assumptions for each sector in the pool.

(2) Collateral
Strong AG collateral values as CNH Industrial N.V. (CNHI) is the second-largest agricultural equipment manufacturer in the world and is a leading producer of tractors and combine harvesters, based on units sold. Brand loyalty is strong in the AG and CE industries and provides support to the continued strength in recoveries evidenced by low net loss rates. As at the end of 2013, the recovery rates have remained well above its five-year weighted average and average days to sell remains well below its five-year weighted average.

(3) Credit Enhancement
The credit enhancement provides a deleveraging structure (after taking into account the cash step downs) as the sequential notes are repaid. Based on a conservative cumulative loss assumption of 60 basis points, relative to performance since 2009, the Spread Account of 2.15%, subordination to the Senior Notes of 2.10% and an estimated excess interest rate spread of 2.73% at closing provides at least 6 times (x) base case expected loss coverage for the Class A Notes and over 3x coverage for the Class B Notes.

(4) Seller/Servicer
CNH Capital (an indirect wholly owned subsidiary of CNH Industrial N.V.) has significant experience in the origination and servicing of equipment loans and leases. This experience includes a successful track record in the issuance and management of private and public securitization programs in Canada, including CNH CCRT 2010-1, 2011-1, 2012-1, 2013-1 and 2013-2 transactions, which are performing well.

Stress tests using assumptions including Replacement Servicer Fees and large increases in delinquency and credit losses indicate that credit enhancement available provides sufficient protection to the Notes to warrant the provisional ratings assigned.

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

The applicable methodologies are Rating Canadian Equipment Finance Securitization Transactions and Legal Criteria for Canadian Structured Finance, which can be found on our website under Methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The Rule 17g-7 Report of Representations and Warranties is hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.