Technology adoption growing in equipment finance ABS

As activity in the equipment finance asset-backed securities and syndication markets continues to increase, more technology companies see opportunities in the markets. 

While the equipment finance industry began preparing during the pandemic  for increased asset-backed securities (ABS) transactions due to increased pandemic-era credit challenges, technology adoption now plays a key role in managing these transactions by developing systems to manage the increased volume., Gary Brackenridge, vice president of lending and leasing at asset management firm Linedata, told Equipment Finance News.  

As a result of growing ABS and syndication, equipment finance technology companies such as Linedata and Tamarack Technology launched offerings to support the increased demand. Linedata launched its structured finance technology offering on Nov. 19, while Tamarack launched a standalone version of its SyndicationBuilder on June 7, according to their respective websites. 

“Many of us did see it coming, not just from the client side, but given we’ve been in a tightening credit cycle here for some time with higher interest rates, people just don’t have the balance sheet,” he said. “It’s not just having the balance sheet, but you want to optimize your deployment of your balance sheet to the best return. And obviously, if you have the opportunity to securitize and package up some of your loans and leases, or you have the ability to syndicate out a deal, the industry has always done that in some scale.” 

Growing equipment finance ABS activity

While ABS and syndication transactions are not new to the equipment finance industry, the past few years have seen more transactions, Brackenridge said. 

“In the past two or three years, we’ve identified that many more firms are either trying to enter the space as lenders or they’re trying to scale so that they can do it in a more consistent fashion and can do it with less operational risk,” he said. 

Equipment financiers can use syndication and ABS technologies to keep capital moving and improve efficiency, Scott Nelson, president and chief technology officer at Tamarack, told EFN. 

“Syndication is like the recycling of your supply chain, so you do a whole bunch of deals, then you syndicate them, and you get all your capital back,” he said. “Once they get the efficiency of time out of the way, then they’re going to come back for the efficiency of return, and they’re going to come back and they’re going to start learning about how to syndicate really fast.” 

Current equipment finance ABS market 

Annualized net losses in Kroll Bond Rating Agency’s (KBRA) Equipment Loan & Lease Index for November rose 34 basis points (bps) month over month and 29 bps year over year to 1%, while recovery rates rose 182 bps MoM and 497 bps YoY to 41.2%. The number of borrowers more than 60 days delinquent fell by 28 bps MoM but rose 12 bps YoY to 1.3%. 

KBRA’s November equipment index includes 108 securitized equipment loan and lease pools of ABS equipment issuances with a collective collateral balance of $33.9 billion. The all-equipment index also features sub-indices in the small- to medium-ticket index and the large-ticket index, according to the KBRA report released Dec. 6. 

Small- to medium-ticket index 

KBRA’s small- to medium-ticket index, which includes transactions of less than $500,000, saw annualized net losses increase 7 bps MoM and 16 bps YoY to 1%. Delinquencies of more than 60 days dropped 86 bps MoM and 16 bps YoY to 1.5%, while the recovery rate rose 853 bps MoM and 824 bps YoY to 44.9% YoY, according to the index. 

The small- to medium-ticket index primarily consists of light-duty equipment such as office equipment and computers, and contains data from 50 securitized equipment pools representing $12.9 billion outstanding. 

Large-ticket index 

KBRA’s large-ticket index continued to drive increased annualized net losses in November for the all-equipment index, with annualized net losses rising 50 bps MoM and 38 bps YoY to 1%. Delinquencies of 60-plus days increased 5 bps MoM and 33 bps YoY to 1.11%, while the recovery rate fell 927 bps MoM and 12 bps YoY to 35.8%. 

The large-ticket index consists of primarily securitized pools of heavy equipment ABS issuances, including agricultural and construction equipment and trucks, with the November index containing data from 58 securitized equipment pools representing $21 billion outstanding. 

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