DBRS Morningstar Finalizes Provisional Ratings on CNH Capital Canada Receivables Trust Receivable-Backed Notes, Series 2023-1

DBRS Limited (DBRS Morningstar) finalized the following provisional ratings on the Receivable-Backed Notes, Series 2023-1 (the Notes) issued by CNH Capital Canada Receivables Trust (the Trust):

-- Class A-1 Receivable-Backed Notes, Series 2023-1 (the Class A-1 Notes) at AAA (sf)
-- Class A-2 Receivable-Backed Notes, Series 2023-1 (the Class A-2 Notes) at AAA (sf)

The Trust also issued Class B Receivable-Backed Notes, Series 2023-1 (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.

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. The AG sector is coming off a strong year with record farm cash receipts. Farm cash receipts were up approximately 14.1% year over year in 2022, increasing to a record high of $94.9 billion, driven by increases in prices and high demand, especially for grains, oilseeds, and livestock. Due to geopolitical conflicts, DBRS Morningstar expects energy, commodity, and agricultural market prices to remain elevated. The prices of many agricultural commodities have come down from highs achieved in 2022, though they remain well above five-year averages. However, because farm input prices remain elevated, margins will be somewhat constrained. Nevertheless, the overall health of the sector provides favorable conditions for performance of agricultural equipment loans. Further, a weak Canadian dollar relative to the U.S. dollar will help support farm incomes even if agricultural commodity prices continue to fall.

COLLATERAL VALUES
AG collateral values have remained robust in Canada as a result of a weak Canadian dollar and low new- and used- equipment inventory levels driven by supply-chain constraints and the global semiconductor shortage. Demand, supported by record farm cash receipts, has also remained strong in the face of relatively high interest rates and a weak Canadian dollar. The easing of supply chain constrains means equipment production volumes are projected to rise in line with the moderation of the global semiconductor shortage, which should see increased deliveries of new equipment orders, helping supply meet demand. However, as unfilled orders remain elevated, DBRS Morningstar expects inventory levels to remain tight despite an expected increase in deliveries from manufacturers. Together with a weak Canadian dollar, this should help support used equipment values. Most new tractors and combines sold in Canada are manufactured south of the border, and a weak Canadian dollar makes this equipment relatively more expensive. Additionally, brand loyalty is strong in the AG and CE industries and provides support to the continued strength in recoveries. 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 considering the cash step-downs) as the Notes are repaid sequentially. The Spread Account of 2.00%, subordination to the Senior Notes of 2.10%, and excess interest rate spread of 2.71% 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. (NR)) 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 17 transactions since 2011, which performed (or are performing) well within base-case expectations.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929 (May 17, 2022).

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

The principal methodology is Rating Canadian Equipment Finance Securitization Transactions (October 26, 2022: https://www.dbrsmorningstar.com/research/404311), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

Other methodologies referenced in this transaction are listed at the end of this press release.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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 rating was initiated at the request of the rated entity.

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

DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

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

DBRS Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

Operational Risk Assessments for Canadian Structured Finance (April 4, 2023), https://www.dbrsmorningstar.com/research/412270/operational-risk-assessments-for-canadian-structured-finance

Legal Criteria for Canadian Structured Finance (June 22, 2022), https://www.dbrsmorningstar.com/research/398729/legal-criteria-for-canadian-structured-finance

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