DBRS Assigns Provisional Ratings to CNH Capital Canada Receivable-Backed Notes, Series 2017-1

DBRS Limited (DBRS) has today assigned the following provisional ratings to the CNH Capital Canada Receivable-Backed Notes, Series 2017-1, issued by CNH Capital Canada Receivables Trust (CNH CCRT or the Trust):

-- AAA (sf) to the Class A-1 Receivable-Backed Notes, Series 2017-1 (the Class A-1 Notes)
-- AAA (sf) to the Class A-2 Receivable-Backed Notes, Series 2017-1 (the Class A-2 Notes)
-- A (sf) to the Class B Receivable-Backed Notes, Series 2017-1 (the Class B Notes)

On closing, the Trust will acquire a portfolio of retail installment sales contracts secured by new and used agricultural (AG) and construction equipment (CE) (the Portfolio of Assets) originated by CNH Industrial Capital Canada Ltd. (CNH Capital) 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) Obligor Profile
Consistent with previous transactions, the current transaction benefits from a diverse portfolio of obligors, mainly from the AG sector. CNH Capital’s obligor profile has demonstrated consecutive years of exceptionally strong repayment history from a delinquency and loss perspective. The detailed historic static loss performance on the AG and CE sectors provides significant data to assess and estimate base-case loss assumptions for each sector in the pool.

(2) Collateral Values
AG collateral values have remained robust in Canada as a result of the low Canadian dollar, even with slow new farm equipment sales. As CNH Capital’s parent CNH Industrial N.V. (CNHI) is the second-largest agricultural equipment manufacturer in the world, 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. Delinquency and annual net loss rates have increased in 2016, but remain low at 0.38% and 0.05%, respectively.

(3) Credit Enhancement Structure
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 (bps), the Spread Account of 2.15%, subordination to the Senior Notes of 2.10% and an excess interest rate spread of approximately 2.78% at closing provides 4.0 times (x) to 6.0x base-case expected loss coverage for the Class A Notes and 2.5x to 3.5x coverage for the Class B Notes.

(4) Experienced Seller/Servicer
CNH Capital (an indirect wholly owned subsidiary of CNHI) 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 eight transactions since 2011, which are performing well within base-case expectations.

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

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 principal methodologies are Rating Canadian Equipment Finance Securitization Transactions (October 2016) and Legal Criteria for Canadian Structured Finance (July 2016), which can be found on dbrs.com 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.