Money

Research: Rating Action: Moody’s Assigns Final Ratings to Kubota Credit Owner Trust Notes 2022-2

New York, July 21, 2022 — Moody’s Investors Service (Moody’s) has assigned final ratings to notes issued by Kubota Credit Owner Trust 2022-2 (KCOT 2022-2). The notes are backed by a pool of retail installment loans secured by new agricultural, construction and turf equipment. Kubota Credit Corporation, USA (KCC) is at the origin of the contracts and will be the manager of the pool to be securitized. KCOT 2022-2 will be KCC’s twelfth transaction.

KCC is a 90% subsidiary of Kubota North America Corporation, which is wholly owned by Kubota Corporation.

The full rating actions are as follows:

Issuer: Kubota Credit Owner Trust 2022-2

Class A-1 notes, final rating assigned P-1 (sf)

Class A-2 notes, final rating assigned Aaa (sf)

Class A-3 notes, final rating assigned Aaa (sf)

Class A-4 notes, final rating assigned Aaa (sf)

RATINGS RATIONALE

The final bond ratings are based on (1) the strong credit quality of the pool of securitized equipment contracts and its expected performance, (2) the strong historical performance of prior KCC-sponsored transactions and the managed portfolio of similar guarantees of KCC, (3) the proven track record, as well as the experience and expertise of KCC as originator and manager, (4) the soundness of the structure of the transaction, including the amount of firm credit enhancement not descending supporting notes, and (5) the legal aspects of the transaction. Additionally, we base our short-term rating of the Class A-1 notes on the cash flows we expect the underlying claims will generate during the collection periods preceding the legal maturity date of the Class A-1 notes. 1.

Moody’s net loss expectation for the KCOT 2022-2 collateral pool is 0.60% and loss under Aaa stress is 6.25%. The cumulative net loss expectation and loss at Aaa stress is similar to that of the KCOT 2022-1 pool, the last trade we rated.

Moody’s cumulative net loss expectation and loss under stress Aaa are based on (1) an analysis of the credit quality of the underlying collateral; (2) historical performance of similar collateral, including securitization performance and managed portfolio performance; (3) KCC’s strong track record and ability to perform the Service Functions; and (4) Moody’s current expectations regarding the macroeconomic environment during the term of the transaction. The strong credit quality of underlying pool obligors and the inclusion of contracts secured only by new equipment paying monthly contribute to the strong historical performance of similar collateral pools securitized by KCC. Additionally, the net loss expectation reflects the strong and resilient performance of KCOT’s transactions and KCC’s managed portfolio during the COVID-19 pandemic, with low overall delinquency, loss and deferral rates, in line with those before the pandemic.

The Class A Notes benefit from 4.25% non-declining sustainable credit enhancement, as a percentage of the discounted aggregate initial pool balance. The firm credit enhancement for the Notes consists of a combination of 3.75% overcollateralization and a fully funded reserve account of 0.50%. Notes may also benefit from an excess spread.

MAIN METHODOLOGY

The main methodology used in these ratings is “Equipment Lease and Loan Securitizations Methodology” published in July 2022 and available on https://ratings.moodys.com/api/rmc-documents/390483. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of ratings:

Down

Moody’s may downgrade the Notes’ ratings if levels of credit enhancement are insufficient to protect investors against current expectations of loss. Losses could exceed Moody’s original expectations due to a higher number of debtor defaults or a greater than expected deterioration in the value of equipment that secures debtors’ promise to pay. As key performance drivers, negative changes in the US macroeconomics or in the state of the agriculture and construction sectors could also negatively affect ratings.

In addition, Moody’s could downgrade the short-term rating of the A-1 class notes in the event of a material slowdown in principal collections during the first year of the transaction, which could result from, among other things, high payment delays. or an interruption of the service which impacts the payments of the debtors.

Additional research, including a pre-sale report for this transaction, is available at www.moodys.com.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

Further information on representations, warranties and enforcement mechanisms available to investors can be found at https://ratings.moodys.com/documents/PBS_1336886.

The analysis includes an evaluation of collateral characteristics and performance to determine expected collateral loss or a range of collateral losses or expected cash flows for rated instruments. In a second step, Moody’s estimates collateral losses or expected cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural characteristics, to derive the loss expected for each scored instrument.

Moody’s quantitative analysis involves an evaluation of scenarios that focus on factors contributing to rating sensitivity and consider the likelihood of material collateral losses or impaired cash flows. Moody’s weights the impact on rated instruments based on its assumptions of the likelihood of events in such scenarios occurring.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following information, if applicable to the jurisdiction: Ancillary services, Information to be provided to the rated entity, Information to be provided by the rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued without modification as a result of such disclosure.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Joao Daher, CFA
Assistant Vice President – Analyst
Structured Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Tracy Rice
VP – Senior Credit Officer
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653