CNH Industrial Capital Australia Receivables Trust Series 2017-1 Assigned Preliminary Ratings

Stocks and Financial Services Press Releases Wednesday August 2, 2017 09:28
MELBOURNE--2 Aug--S&P Global Ratings

MELBOURNE (S&P Global Ratings) Aug. 2, 2017--S&P Global Ratings today assigned its preliminary ratings to four classes of asset- backed securities (ABS) to be issued by Perpetual Trustee Co. Ltd. as trustee of CNH Industrial Capital Australia Receivables Trust Series 2017-1 (see list).

The notes are backed by chattel mortgage and finance lease contracts secured by agricultural and construction equipment that were originated by CNH Industrial Capital Australia Pty Ltd. (CNHI Capital).
This is the tenth term-note transaction backed by collateral originated by CNHI Capital. The preliminary ratings assigned to the notes reflect:

The credit support provided for the rated notes in the form of subordination is commensurate with the credit risk of the underlying collateral portfolio.That all contract payments, including the residual or balloon payments, are an obligation of the borrower.

As a result, the trust is not exposed to any market-value risk associated with the sale of the equipment (on performing receivables), which is a risk that may be associated with other products, such as operating leases.The originator and servicer, CNHI Capital, has a long and stable track record of asset origination.

We have reviewed CNHI Capital as the servicer, in line with our "Global Framework For Assessing Operational Risk In Structured Finance Transactions" criteria.

We have concluded that operational risk does not constrain our ratings on the notes. In addition, CNHI Capital meets our "Standard & Poor's Revises Criteria Methodology For Servicer Risk Assessment" servicer risk criteria.

The issuer's capacity to pay interest to the rated note holders in full on each interest payment date, and to repay principal in full no later than the final maturity date, under rating stresses commensurate with the preliminary ratings assigned to the notes. All rating stresses are made on the basis that the issuer does not call the notes on or beyond the call-option date, and that the notes must be fully redeemed via the mechanisms under the transaction documents.

In the case of the 'A-1+ (sf)' rating on the class A1 notes, our expectation that, under a zero-prepayment rate and 'AAA' stress-case scenario, the principal passed through from the performing loans will be sufficient to repay this tranche by its legal final maturity date of Aug. 16, 2018.

Liquidity and yield support for the transaction is provided in the form of a cash reserve funded at closing by CNHI Capital and equal to 4.3% of the notes issued. Principal collections may also be used to meet short-term liquidity demands.

In addition, an extraordinary expense reserve of A$350,000 is provided in the form of a cash reserve funded at closing by CNHI Capital to meet extraordinary expenses.
The legal structure of the issuer, which is established as a special-purpose entity and meets our criteria for insolvency remoteness.

Our preliminary ratings also take into account the counterparty support provided by Australia and New Zealand Banking Group Ltd. (ANZ) as bank account provider and Societe Generale as fixed- to floating-rate interest-rate swap provider.

Fixed- to floating-rate interest-rate swaps are provided to hedge the mismatch between the fixed-rate payments on the receivables and the floating-rate interest payable on the rated notes. The transaction documents for the swap and bank accounts include downgrade language consistent with our "Counterparty Risk Framework Methodology And Assumptions" counterparty criteria, published on June 25, 2013, which require the replacement of the counterparty or other remedy, should its rating fall below the applicable rating.

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