Approximately $789 million asset-backed securities rated
New York, May 27, 2020 -- Moody's Investors Service ("Moody's") has assigned
definitive ratings to the notes issued by CNH Equipment Trust 2020-A
(CNH 2020-A), sponsored by CNH Industrial Capital America
LLC (CNH Capital America), an indirect, wholly owned subsidiary
of CNH Industrial N.V. (CNH Industrial; Baa3 stable).
CNH Capital America is also the originator of the assets backing the transaction.
New Holland Credit Company, LLC (New Holland), an indirect,
wholly owned subsidiary of CNH Industrial, is the servicer for this
transaction.
The notes in CNH 2020-A are backed by a pool of fixed-rate
US retail installment sale contracts and loans secured primarily by new
and used agricultural equipment, and some new and used construction
equipment.
The complete rating actions are as follows:
Issuer: CNH Equipment Trust 2020-A
Class A-1 Notes, Definitive Rating Assigned P-1 (sf)
Class A-2 Notes, Definitive Rating Assigned Aaa (sf)
Class A-3 Notes, Definitive Rating Assigned Aaa (sf)
Class A-4 Notes, Definitive Rating Assigned Aaa (sf)
Class B Notes, Definitive Rating Assigned Aa2 (sf)
RATINGS RATIONALE
The ratings of the notes are based on the credit quality of the underlying
equipment contracts pool to be securitized and its expected performance,
the historical performance of CNH Capital America's prior securitizations
and its managed portfolio of similar collateral, the strength of
the structural and legal aspects of the transaction, and the ability,
experience and expertise of CNH Capital America as the originator,
and New Holland as the servicer of the securitized pool. Additionally,
we base our P-1 (sf) rating of the Class A-1 notes on the
cash flows that we expect the underlying receivables to generate during
the collection periods prior to the Class A-1 notes' legal final
maturity date on June 15, 2021. The rating action also considered
the heightened risk owing to the unprecedented shock that the coronavirus
outbreak is causing on the global economy.
Key credit strengths of the transaction include (1) strong credit performance
of managed portfolio, (2) experienced management team/sponsor and
servicer, and (3) strong transaction structure. Key credit
challenges include (1) high exposure to agricultural industry, (2)
the negative effect of the coronavirus on economic activity in the US,
(3) high proportion of annual-pay contracts, (4) exposure
to construction sector, and (5) risk of declining used equipment
values.
Moody's cumulative net loss expectation for the CNH 2020-A collateral
pool is 1.50% and the loss at a Aaa stress is 6.50%.
Moody's based its cumulative net loss expectation and the loss at a Aaa
stress for the CNH 2020-A transaction on an analysis of the credit
quality of the securitized pool; the historical performance of similar
collateral, including prior CNH-sponsored securitizations
credit performance, as well as CNH's managed portfolio performance
of similar collateral; the ability, experience and expertise
of New Holland to perform the servicing functions; and current expectations
for the conditions of the macroeconomic environment and agriculture industry
during the life of the transaction. Moody's took into account the
difficult operating environment for obligors in the pool stemming from
the coronavirus pandemic through additional sensitivity testing and stress
scenarios. Specifically, Moody's overweighted the performance
of historical recessionary periods in determining its expected loss.
Additionally, in assigning a P-1 (sf) rating to the Class
A-1 notes, Moody's considered the cash flows that it expects
the underlying receivables to generate during the collection periods prior
to the Class A-1 notes' legal final maturity date. At current
size, assuming no prepayment and our stressed default assumption,
the A-1 tranche can withstand a reduction in expected cashflows
of roughly 27% prior to maturity without incurring a loss.
At closing, the Class A notes benefit from 4.50% of
hard credit enhancement (as a percentage of the initial pool balance).
Hard credit enhancement consists of a spread account of 2.25%
of the initial pool balance and subordination of 2.25% provided
by the Class B notes. The Class B notes benefit from hard credit
enhancement of 2.25% provided by the spread account.
Excess spread may be available as additional credit protection for the
notes and it initially represents approximately 3.84% of
the cut-off pool balance annualized. The transaction's sequential-pay
structure, non-declining spread account and turbo payment
of the Class A-1 notes will result in a build-up of credit
enhancement to support the notes.
Our analysis has considered the effect of the coronavirus outbreak on
the US economy, as well as the effects that the announced government
measures, put in place to contain the virus, will have on
the performance of corporate assets.
The contraction in economic activity in the second quarter will be severe
and the overall recovery in the second half of the year will be gradual.
However, there are significant downside risks to our forecasts in
the event that the pandemic is not contained and lockdowns have to be
reinstated. As a result, the degree of uncertainty around
our forecasts is unusually high. We regard the coronavirus outbreak
as a social risk under our ESG framework, given the substantial
implications for public health and safety.
The US agriculture sector is deemed essential for food supply and is expected
to be more resilient than many sectors as the spread of the coronavirus
outbreak widens and the global economic outlook deteriorates. Moody's
does not anticipate reduced demand in the agriculture sector initially
because of a weakening US economy. Contraction in economic activity
could hurt loan performance for small farms or construction obligors that
generally have less liquidity, financial flexibility or wherewithal
to weather such an event. However, disruptions in supply
chains could strain liquidity for farming operations, pointing to
a re-calibration of distribution channels and relaying on farmers'
ability to re-deploy production to match demand. However,
recent federal assistance programs and distribution partnerships with
regional and local distributors are intended to assist farmers'
net cash incomes. As construction activity is halted in some states,
we expect an overall negative impact on the construction and homebuilding
sector despite better weather, which is usually beneficial.
Historically, during recessionary periods, construction and
homebuilding experienced weakness, higher losses. In addition,
the servicer may offer borrower assistance programs to affected borrowers,
such as extensions, which may adversely impact scheduled cash flow
and the speed of repayment of the money market tranche.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's Approach
to Rating ABS Backed by Equipment Leases and Loans published in May 2020
and available at https://www.moodys.com/research/Moodys-Approach-to-Rating-ABS-Backed-by-Equipment-Leases-and--PBS_1218876.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Moody's could upgrade the ratings on the subordinate notes if levels of
credit enhancement are greater than necessary to protect investors against
current expectations of loss. Moody's then-current expectations
of loss may be better than its original expectations because of lower
frequency of default by the underlying obligors or lower depreciation
than expected of the value of the equipment that secure the obligors'
promise of payment. As the primary drivers of performance,
positive changes in the US macro economy and the condition of the agriculture
and construction sectors where the obligors operate could also positively
affect the ratings.
Down
Moody's could downgrade the ratings on the notes if levels of credit enhancement
are insufficient to protect investors against current expectations of
loss. Losses could rise above Moody's original expectations as
a result of a higher number of obligor defaults or deterioration in the
value of the equipment that secure the obligors' promise of payment.
As the primary drivers of performance, negative changes in the US
macro economy or the condition of the agriculture and construction sectors
could also negatively affect the ratings. Other reasons for worse-than-expected
performance could include poor servicing, error on the part of transaction
parties, inadequate transaction governance or fraud.
Additionally, Moody's could downgrade the short-term rating
of the Class A-1 notes in the event of a significant slowdown in
principal collections in the first year of the transaction, which
could result from, among other reasons, high delinquencies
or payment deferrals or a servicer disruption that impacts obligors' payments.
Additional research including a pre-sale report for this transaction
is available at www.moodys.com.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
Further information on the representations and warranties and enforcement
mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1230428
The analysis includes an assessment of collateral characteristics and
performance to determine the expected collateral loss or a range of expected
collateral losses or cash flows to the rated instruments. As a
second step, Moody's estimates expected collateral losses or cash
flows using a quantitative tool that takes into account credit enhancement,
loss allocation and other structural features, to derive the expected
loss for each rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agents and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Corina Teodora Bot
Associate Lead Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Karen Ramallo
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
