Varilease Finance sponsors its first ABS deal, a $170.8 million deal

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VFI ABS 2022-1 is preparing to tap the capital markets for $170.8 million in asset-backed securities. A pool of industrial and commercial equipment contracts, with a pool balance of $150.4 million at the time of securing the notes.

This is the first ABS transaction of Varilease Finance, the sponsor of the operation. Based in Salt Lake City, Varilease is an independent equipment finance company specializing in leasing industrial and commercial equipment to upper and middle market businesses. The company’s deal sizes range from $500,000 to $25 million, with an average deal size of approximately $2.3 million.

Total collateral could rise to as much as $25 million with the addition of equipment contracts during a three-month pre-funding period, according to ratings agency Kroll Bond, which plans to issue ratings on tickets.

The transaction, VFI 2022-1, will issue four categories of notes, to which KBRA plans to assign ratings ranging from “AAA” on the $141.6 million Class A notes to “BB” on the Class D notes. of $5.7 million, KBRA said.

Keybanc Capital Markets will be the initial purchaser of the Notes. The Trust will repay Noteholders on a sequential basis. The notes benefit from subordination, overcollateralization, a reserve account and a cumulative net loss trigger provision to ensure that the trust continues to repay noteholders well, KBRA said.

The reserve account holds an amount equal to approximately 1.5% of the note balance; it is not amortized and therefore increases as a percentage of the pool balance over time. Overcollateralization is subject to a target level of 5.6% of the current pool balance and prevents excess spread leakage, according to the KBRA.

The underlying pool has 68 obligors and is diversified by industry category. The manufacturing sector represents the largest underlying asset class, 20.5%, as a percentage of the total discounted receivables balance. The food industry follows with 11.5% of assets; oil and gas equipment represents 10.9%; and construction, with 9.8%.

The top five obligors represent 20.7% of the pool balance and the obligor seat also diversifies the pool. California-based obligors make up the highest percentage of head offices, 7.3%, followed by Texas at 7.1% and New York at 6.8%. Oregon and Colorado round out the top five, with 5.0% and 4.7% respectively.

On a weighted average (WA) basis, the loans have 44 initial scheduled payments, with a seasoning of 11 months.

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