April 14, 2014 / 1:00 PM / in 4 years

RPT-Fitch to Rate Kubota Credit Owner Trust 2014-1; Issues Presale

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April 14 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings expects to assign the following ratings and Rating Outlooks to Kubota Credit Owner Trust 2014-1:

--$62,100,000 class A-1 notes ‘F1+sf’;

--$93,000,000 class A-2 notes ‘AAAsf’; Outlook Stable;

--$94,000,000 class A-3 notes ‘AAAsf’; Outlook Stable;

--$50,900,000 class A-4 notes ‘AAAsf’; Outlook Stable.

Fitch’s stress and rating sensitivity analysis are discussed in Fitch’s presale report, ‘Kubota Credit Owner Trust 2014-1’, published today and available at ‘www.fitchratings.com’ or by clicking on the below link.


Quality of Receivables: For the 81% of the pool with FICO scores, the obligors have strong credit quality, as evidenced by the WA FICO of 741 for the 2014-1 pool. Additionally, the majority of the 2014-1 pool (approximately 87%) consists of new AG equipment, which is the strongest performing collateral type. The 2014-1 pool is also diversified in terms of geographic concentrations and has limited exposure to obligor concentrations.

Strong Managed Portfolio: Kubota Credit Corporation’s managed portfolio has experienced consistent and low levels of delinquencies and net losses dating back to 2008. As static pool data from a recessionary period were not available, Fitch supplemented the KCC data with proxy data from prime auto loan issuers with similar FICO composition on the consumer portion (81%) of the pool and John Deere and CNH Capital proxy data for the commercial portion (19%) of 2014-1 to derive an expected base case cumulative net loss (CNL).

Credit Enhancement: Initial hard credit enhancement (CE) for 2014-1 is 4% for the class A notes. The transaction also benefits from expected excess spread of 2.02% per annum (p.a.). Based on Fitch’s stressed cash flow scenarios, the structure can support 6.62% in net loss coverage under a 1.30% base case proxy. This results in loss multiples in excess of 5.0x, consistent with an ‘AAAsf’ rating for the class A notes.

Quality Origination, Underwriting, and Servicing Platform: KCC has demonstrated adequate abilities as originator, underwriter, and servicer, as evidenced by historical delinquency and net loss performance of the managed portfolio. Integrity of Legal Structure: The legal structure of the transaction should provide that a bankruptcy of the trust would not impair the timeliness of payments on the securities.


Unanticipated increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than the base case and could result in potential rating actions on the notes. Fitch evaluated the sensitivity of the ratings assigned to KCOT 2014-1 to increased CNL over the life of the transaction. Fitch’s analysis found that the transaction displays some sensitivity to increased defaults and CNL, showing a potential downgrade of one category under Fitch’s moderate (1.5x base case loss) scenario. The notes could experience downgrades of up to three rating categories, although still remain investment grade, under Fitch’s severe (2.5x base case loss) scenario.

Key rating drivers and rating rensitivities are further detailed in the accompanying pre-sale report.

Fitch’s analysis of the Representations and Warranties (R&W) of this transaction can be found in ‘Kubota Credit Owner Trust 2014-1 - Appendix’. These R&W are compared to those of typical R&W for the asset class as detailed in Fitch’s April 17, 2012 special report, ‘Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions’.

Link to Fitch Ratings’ Report: Kubota Credit Owner Trust 2014-1 (US ABS)


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