DBRS Morningstar Finalizes Provisional Ratings on CNH Capital Canada Receivables Trust Receivable-Backed Notes, Series 2021-1

DBRS Limited (DBRS Morningstar) finalized the following provisional ratings on the Receivable-Backed Notes, Series 2021-1 (the Notes) issued by CNH Capital Canada Receivables Trust (the Trust):

-- Class A-1 Receivable-Backed Notes, Series 2021-1 (the Class A-1 Notes) at AAA (sf)
-- Class A-2 Receivable-Backed Notes, Series 2021-1 (the Class A-2 Notes) at AAA (sf)

The Trust also issued Class B Receivable-Backed Notes, Series 2021-1 (the Class B Notes), which are not rated by DBRS Morningstar. On closing, the Trust acquired 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.

DBRS Morningstar considered additional analyses and, where appropriate, additional adjustments to expected performance as a result of the global efforts to contain the spread of the Coronavirus Disease (COVID-19). DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020. The scenarios were updated on March 17, 2021, and are reflected in DBRS Morningstar’s rating analysis. For details, see https://www.dbrsmorningstar.com/research/375376. DBRS Morningstar’s analysis considered impacts consistent with the moderate scenario in the referenced commentary.

The ratings incorporate the following considerations:

OBLIGOR PROFILE
Consistent with previous transactions, the current transaction benefits from a diverse portfolio of obligors, mainly from the AG sector. Canadian farms have shown resilience in 2020, with cash receipts increasing 8.1% as a result of higher crop receipts and increased program payments. Favourable growing conditions, higher export demand for Canadian crops, and greater rail capacity resulted in 14% more in crop receipts for Canadian farmers in 2020, which helped offset lower livestock receipts. 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 on the AG and CE sectors provides significant data to assess and estimate base-case loss assumptions for each sector in the pool.

COLLATERAL VALUES
AG collateral values have remained robust in Canada as a result of the low Canadian dollar. 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. The vast majority of assets are remarketed through CNH Capital's in-house sales channel, which has historically resulted in greater disposition proceeds than third-party auctions.

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 excess interest rate spread of 3.09% 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.

EXPERIENCED SELLER/SERVICER
CNH Capital (an indirect wholly owned subsidiary of CNH Industrial N.V. (rated BBB (low) with a Stable trend by DBRS Morningstar)) 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 13 transactions since 2011, which performed (or are performing) well within base-case expectations.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
The principal methodology is Rating Canadian Equipment Finance Securitization Transactions (October 26, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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 [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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