Equipment contracts back Channel EF, raising $204.8 million in ABS

Commercial equipment leases and loan contracts will provide collateral for $204.8 million in securitized bonds, coming to market through the Channel EF 2026-1.

The asset-backed securities (ABS) will be issued through six tranches of class A, B, C, D and E notes. The A1 tranche has a legal final maturity date of May 17, 2027, while all the notes through the rest of the deal mature on Jan. 17, 2034, according to analysts at Kroll Bond Rating Agency.

The A1 and A2 notes benefit from initial hard credit enhancement levels of 35.55%, KBRA said. Classes B, C, D and E benefit from initial hard credit enhancement levels of 29.25%, 23.10%, 16.40% and 11.35%, respectively.

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Wells Fargo Securities is the underwriter of the deal, which is slated to close on May 19, according to analysts at KBRA and Morningstar DBRS.

Structurally, the deal uses overcollateralization, excess spread, a reserve account and subordination in the case of classes A1, A2, B, C and D.

Notes will amortize sequentially to allow cash to be released to the issuing entity on a limited basis if it maintains the overcollateralization target. At closing, initial OC will be about 10.35%, and the transaction will use available funds to accelerate principal payments until it reaches a target OC level of 13.80%, DBRS said.

Channel EF 2026-1 has a prefunding period that lasts until July 31, 2026, a window where it can spend about $31.27 million to purchase about $34.8 million in additional contracts.

The notes also benefit from excess spread of about 1.07% per year, KBRA said.

The deal also has a cumulative net loss trigger which stipulates that if the cumulative net loss ratio exceeds the established percentages for each collection period, all collections available after the regular principal distribution will pay principal of all the classes sequentially.

For the collateral pool, KBRA notes that transportation equipment accounted for 14.62% of the pool; trailers, 10.27%; and local transportation, 3.87%, KBRA said.

Also, the pool appears to be diversified by industry types, with local transportation, 3.70%; other transportation, 3.43%; and long-haul trucking, 1.94%, the rating agency said.

DBRS’s ratings on the notes range from (P) R-1 (high) (sf) on the A1 notes through (P) BB (sf) on the class E notes.

KBRA assigns K1+ to the A1 notes; AAA to the A2 notes; A to the class C notes; and BBB and BB to classes D and E, respectively.