Equipment asset-backed securities 60-plus-days delinquencies rose sequentially in May across all publicly rated deals, amid mixed overall credit performance as the market normalized.
The number of borrowers more than 60 days delinquent in Kroll Bond Rating Agency’s (KBRA) Equipment Loan & Lease Index for May increased by 14 basis points (bps) month over month and 22 bps year over year. Meanwhile, annualized net losses dropped 26 bps MoM but increased 10 bps YoY and recovery rates increased 855 bps MoM and 620 bps YoY.
KBRA’s May equipment index includes 97 securitized equipment loan and lease pools with a collective collateral balance of $31.3 billion. The all-equipment index also has two sub-indices: the large-ticket index and the small-to-medium-ticket index.
“We were in a period of very low net losses during 2020, 2021 and early 2022 as result of equipment prices being very elevated, so any kind of charge-off was a low amount of charge-off that was occurring, and the recoveries were 100% or, in some cases, over 100%,” KBRA Head of Structured Finance Research Brian Ford told Equipment Finance News.
“We’re back at a period of normalcy, as delinquencies and losses might be slightly higher than they were pre-COVID, but nothing … meaningful.”
Large-ticket index
KBRA’s large-ticket index, consisting of transactions over $500,000, was mostly driven in May by lower defaults and higher recoveries in three large, volatile transactions focused on the trucking industry. Annualized net losses fell 53 bps MoM to 0.57% and 60-plus-days delinquencies increased 15 bps MoM to 1.07%.
Year over year, large-ticket annualized net losses declined 16 bps while delinquency rates jumped 52 bps.
KBRA’s large-ticket index is made up of securitized pools of heavy equipment, including trucks, agricultural and construction equipment. The May edition of the index contains observations for 58 large-ticket securitized equipment pools, representing $20.2 billion outstanding.
Small-to-medium-ticket index
KBRA’s small-to-medium-ticket index — which includes transactions under $500,000— mostly differed in May from trends in the all-equipment index for annualized net losses, increasing 26 bps MoM and 59 bps YoY.
Meanwhile, delinquencies greater than 60 days on the small-to-medium-ticket equipment loans and leases increased 11 bps MoM but declined 28 bps YoY.
KBRA’s small-to-medium-ticket index contains securitized pools of light-duty equipment, primarily Dell and Hewlett-Packard office equipment and computers. The May index contains observations from 39 small-to-medium-ticket securitized equipment pools, which represents $11.1 billion outstanding.
“Equipment finance has been a stalwart asset type for over 30 years,” Joanne DeSimone, managing director of commercial ABS, told EFN. “Each pool is diversified in terms of industry equipment types, obligors, etc., so, the equipment ABS has always plodded along without any significant periods of volatility.”
