DBRS Assigns Provisional Ratings to CNH Capital Canada Receivables Trust Receivable-Backed Notes, Series 2019-1

DBRS Limited (DBRS) assigned the following provisional ratings to the Receivable-Backed Notes, Series 2019-1 (the Notes) to be issued by CNH Capital Canada Receivables Trust (the Trust):

-- AAA (sf) to the Class A-1 Receivable-Backed Notes, Series 2019-1 (the Class A-1 Notes)
-- AAA (sf) to the Class A-2 Receivable-Backed Notes, Series 2019-1 (the Class A-2 Notes)

The Trust will also issue Class B Receivable-Backed Notes, Series 2019-1 (the Class B Notes), which are not rated. On closing, the Trust will acquire a portfolio of retail instalment 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 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. Canadian farmers contributed to and benefited from a strong year of growth in 2018 in the Canadian economy. CNH Capital’s obligor profile has demonstrated consecutive years of exceptionally strong repayment history from a delinquency and loss perspective, as the equipment is typically integral to their operations. The detailed historical 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 Industrial N.V. (rated BBB (low) with a Stable 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) remained low at 0.36% in 2018, while annual net loss rates increased to 0.07%.

(3) Credit Enhancement Structure
The credit enhancement provides a deleveraging structure (after taking into account the cash step-downs) as the Notes are repaid sequentially. The Spread Account of 2.15%, subordination to the Class A Notes of 2.10% and an estimated excess interest rate spread of 2.55% at closing (before replacement servicer fees) 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 56 basis points.

(4) Experienced 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 12 transactions since 2011, which are performing well within base-case expectations.

Notes:
The principal methodology is Rating Canadian Equipment Finance Securitization Transactions, which can be found on dbrs.com under Methodologies & Criteria.

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 relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada