Moody's Rates CNH Industrial's ABS - Analyst Blog

Moody's, a leading credit rating agency, assigned provisional ratings to the fixed-rate securities to be issued by CNH Equipment Trust 2014-B, the debt issuing entity of CNH Industrial N.V. (CNHI). The asset-backed securities (ABSs), worth $999.6-million, will be sponsored by CNH Industrial Capital America LLC, an affiliate of CNH Industrial.

Ratings
    
CNH Industrial's equipment lease securitization consists of four tranches of A notes and one tranche of B notes. The Class A notes, amounting to $977 million, have been assigned a rating of Aaa, which is awarded to securities of the highest quality with the lowest level of credit risk. In addition, its Class A-1 notes have received a P-1 rating, indicating a superior ability to repay short-term debt obligations. The $22.5 million Class B notes have been assigned an A2 rating, and are subject to low credit risk.

The ratings of the notes address their credit quality and signify the likelihood of the timely repayment of interest and the ultimate payment of principal pursuant to their terms.

ABS Structure

An ABS is a financial instrument backed by a pledge of the issuing entity's assets, typically issued in classes or tranches of declining seniority. This CNH Equipment Trust 2014-B securitization involves underlying collateral of fixed-rate installment sale contracts and retail installment loans, backed by agricultural or construction equipment. The contract value of the collateral amounted to nearly $1.04 billion as of Apr 30.

Discounted at 4%, the collateral value is equivalent to the cumulative volume of the issuance, which is around $999.6 million. The subordination of the B tranche provides a credit enhancement to the Class A notes of the ABS structure.

Ratings Rationale & Outlook    

The strong ratings by Moody's reflect the first-rate quality of the underlying collateral pool, the strength of the ABS structure, and the experience and proficiency of the ABS servicer, New Holland Credit Company, LLC.

In addition, there is an initial 4.50% hard credit enhancement behind the Class A notes, consisting of a spread account and subordination. Credit enhancements improve the credit quality and ratings assigned to the notes.

The notes could receive an upgrade in case the issuer provides better credit protection to investors by way of enhancements. Robust macroeconomic performance and improved agricultural markets, being major drivers of performance of the collateral, might also lead to an upgrade.

CNH Industrial presently holds a Zacks rank #3 (Hold). Notable stocks in the sector that look promising include Cooper Tire & Rubber Co. CTB, Fox Factory Holding Corp FOXF and Gentherm Incorporated THRM. Each of these stocks holds a Zacks Rank #1 (Strong Buy).