Morningstar DBRS Assigns Provisional Credit Ratings to CNH Capital Canada Receivables Trust II's Receivable-Backed Notes, Series 2025-1

DBRS Limited (Morningstar DBRS) assigned the following provisional credit ratings to the Receivable-Backed Notes, Series 2025-1 to be issued by CNH Capital Canada Receivables Trust II (the Trust):

-- Class A-1 Receivable-Backed Notes, Series 2025-1 (the Class A-1 Notes) at (P) AAA (sf)
-- Class A-2 Receivable-Backed Notes, Series 2025-1 (the Class A-2 Notes) at (P) AAA (sf)

CREDIT RATING RATIONALE/DESCRIPTION
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 Series 2025-1 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.

Credit rating rationale includes the key analytical considerations.

(1) Obligor Profile
Consistent with previous transactions, the current transaction benefits from a granular portfolio of obligors, mainly from the AG sector. The AG sector had another strong year in 2024, albeit at slightly lower levels, with farm cash receipts totalling $97.9 billion, down 1.6% from 2023. This marks the first year-over-year (YOY) decline since 2010 and can be attributed to lower crop receipts because of lower crop prices and lower direct payments because of a drop in crop insurance, both falling 6.2% YOY and 10.8% YOY, respectively. However, livestock receipts increased 6.9% YOY, driven by increases in most sectors. Farm cash receipts over 2025Q1 totalled $25.9 billion, up 3.1% over the same period last year. The higher farm cash receipts in early 2025 were driven by 14.0% higher livestock receipts compared with the same period last year, because of higher prices for most types of livestock. Early trends underscore the agricultural sector's overall health and provides favourable conditions for performance of AG loans in the short- to medium-term.

(2) Collateral Values
New farm equipment sales slowed in 2024 because of falling commodity prices, high operating costs, and lower profits. This is after a strong year of sales in 2023, as easing supply chain constraints allowed manufacturers to catch up on deliveries of new equipment orders, helping supply meet demand. As sales slowed in 2024, inventory levels have continued to rise, applying downward pressure on used collateral values. However, the recent imposition of tariffs by the Trump administration since taking office has introduced some uncertainty into the agricultural sector. In response, farmers are likely to try to extend the useful life of existing equipment or opt to purchase used equipment rather than investing in new equipment. Additionally, a lower Canadian dollar should help support used equipment values. Most new tractors and combines sold in Canada are manufactured south of the border, and the weak Canadian dollar makes this equipment relatively more expensive, making used equipment more attractive. Finally, 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.

(3) Credit Enhancement Structure
The credit enhancement provides a deleveraging structure (after taking into account the cash step-downs) as the Series 2025-1 Notes are repaid sequentially. The Spread Account of 2.00%, overcollateralization to the Series 2025-1 Notes of 2.10%, and excess interest rate spread of 2.21% (assuming 22% CPR) at closing (net of the indicative cost of funds and before replacement servicer fees) satisfy the minimum 4.0 times (x) to 6.0x base-case expected loss coverage for the Series 2025-1 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 19 transactions since 2011, which performed (or are performing) well within base-case expectations.

(5) Concentration Risks
Approximately 94.5% of the portfolio is exposed to AG, representing a significant risk if sudden and prolonged negative fundamentals have an impact on the North American AG sector. Additionally, the majority of obligors in the portfolio are based in Saskatchewan and Alberta, consistent with the Issuer's previous transactions. In general, the strong Canadian farm balance sheet and conservative advance rates on the underlying equipment in this transaction should provide a buffer from a significant downturn in the agricultural industry fundamentals.

Morningstar DBRS' credit rating on the Series 2025-1 Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the Series 2025-1 Notes.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS   
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781.

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

The principal methodology applicable to the credit rating is Rating Canadian Equipment Finance Securitization Transactions (September 24, 2024), https://dbrs.morningstar.com/research/439989.

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

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@morningstar.com.

The credit rating was initiated at the request of the rated entity.

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

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

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

A provisional credit rating is not a final credit rating with respect to the above-mentioned Notes and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned Notes is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 600
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/410863.

-- Operational Risk Assessments for Canadian Structured Finance (March 28, 2025),
https://dbrs.morningstar.com/research/450831/

-- Legal and Derivatives Criteria for Canadian Structured Finance (August 12, 2024),
https://dbrs.morningstar.com/research/437761/

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.