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Research: Rating Action: Moody’s assigns provisional ratings to Kubota Credit Owner Trust 2022-2 notes

New York, July 11, 2022 — Moody’s Investors Service (Moody’s) has assigned provisional ratings to the notes to be issued by Kubota Credit Owner Trust 2022-2 (KCOT 2022-2). The notes will be backed by a pool of retail installation loans secured by new agricultural, construction and turf equipment. Kubota Credit Corporation, USA (KCC) originated the contracts and will be the servicer of the pool to be securitized. KCOT 2022-2 will be KCC’s twelfth transaction.

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

The complete rating actions are as follows:

Issuer: Kubota Credit Owner Trust 2022-2

Class A-1 Notes, Assigned (P)P-1 (sf)

Class A-2 Notes, Assigned (P)Aaa (nd)

Class A-3 Notes, Assigned (P)Aaa (nd)

Class A-4 Notes, Assigned (P)Aaa (nd)

RATIONAL RATINGS

The provisional ratings of the notes are based on (1) the strong credit quality of the underlying equipment contract pool to be securitized and its expected performance, (2) the strong historical performance of prior KCC-sponsored transactions and of KCC’s managed portfolio of similar collateral, (3) the proven track record, and experience and expertise of KCC as the originator and servicer, (4) the strength of the transaction structure, including the amount of non-declining hard credit enhancement supporting the 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 that we expect the underlying receivables to generate during the collection periods prior to the class A-1 notes’ legal final maturity date.

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

Moody’s cumulative net loss expectation and loss at a Aaa stress are based on an analysis of the credit quality of the underlying collateral; the historical performance of similar collateral, including securitization performance and managed portfolio performance; the ability of KCC to perform the servicing functions; and current expectations for the macroeconomic environment during the life of the transaction. The strong credit quality of the obligors in the underlying pool and the inclusion of contracts secured by only new equipment that pay 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 the KCOT deals and KCC’s managed portfolio during the COVID-19 pandemic, with low overall delinquency, loss and deferral rates, consistent with those prior to the pandemic.

The class A notes will benefit from 4.25% of non-declining hard credit enhancement, as a percentage of the initial aggregate discounted pool balance. Hard credit enhancement for the notes will consist of a combination of 3.75% of over-collateralization and a fully funded reserve account of 0.50%. The notes may also benefit from excess spread.

MAIN METHODOLOGY

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

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

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 a greater than expected 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.

Additionally, Moody’s could downgrade the short-term rating of the class A-1 notes if there is a significant slowdown in principal collections in the first year of the transaction, which could result from, among other reasons, high delinquencies 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 on https://ratings.moodys.com/rating-definitions.

Further information on the representations and warranties and enforcement mechanisms available to investors are available on https://ratings.moodys.com/documents/PBS_1335629.

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 occurring in such scenarios.

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 issue 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 issuer/deal page for the respective issuer on https://ratings.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 agent(s) 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 https://ratings.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://ratings.moodys.com/documents/PBC_1288235.

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 https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK . Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Joao Daher, CFA
Asst Vice President – Analyst
Structured Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
USES
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

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

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