DBRS Finalizes Provisional Ratings on CNH Capital Canada Receivables Trust’s Receivable-Backed Notes, Series 2018-1

DBRS Limited (DBRS) finalized its provisional ratings on the Receivable-Backed Notes, Series 2018-1 issued by CNH Capital Canada Receivables Trust (the Trust) as follows:

-- Class A-1 Receivable-Backed Notes, Series 2018-1 (the Class A-1 Notes) rated AAA (sf)
-- Class A-2 Receivable-Backed Notes, Series 2018-1 (the Class A-2 Notes) rated AAA (sf)

The Trust also issued Class B Receivable-Backed Notes, Series 2018-1 (the Class B Notes), which are not rated. On closing, the Trust acquired a portfolio of retail installment sales contracts secured by new and used agricultural equipment (AG) and construction equipment (CE; collectively, the Portfolio of Assets) originated by CNH Industrial Capital Canada Ltd. (CNH Capital) in Canada. The Class A-1 Notes and Class A-2 Notes (collectively, the Class A Notes) and the Class B Notes are structured as sequential-pay pass-through securities with principal and interest paid on a monthly basis from collections on the Portfolio of Assets.

The 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. Canadian farmers contributed to and benefited from a strong year of growth in 2017 in the Canadian economy. CNH Capital’s obligor profile has demonstrated consecutive years of exceptionally strong repayment history from a delinquency and loss perspective. The detailed historical static loss performance in 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 Industrial N.V. (CNHI; rated BB (high) with a Positive trend by DBRS) is the second-largest AG manufacturer in the world, brand loyalty is strong in the AG and CE industries and provides support to the continued strength in recoveries, as evidenced by the low net loss rates. Delinquency rates (30 days or more past due) increased in 2017 but remained low at 0.42%, and annual net loss rates were stable at 0.03%.

(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. The Spread Account of 2.15%, subordination to the Class A Notes of 2.10% and an excess interest rate spread of 2.57% at closing satisfy the minimum 4.0 times (x) to 6.0x base-case expected loss coverage for the Class A Notes based on a conservative cumulative loss assumption of 55 basis points.

(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 ten transactions since 2011, which are performing well within base-case expectations.

Notes:
The principal methodologies are Rating Canadian Equipment Finance Securitization Transactions (October 2017) and Legal Criteria for Canadian Structured Finance (July 2017), which can be found on dbrs.com 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 under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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