The John Deere Owner Trust returns with a $1 billion asset-backed securities transaction, which will sell notes to investors backed by a pool of fixed-rate installment loan agreements on agricultural and construction equipment.

John Deere Owner Trust, 2022-C, refers to two potential pools that could be securitized, either a pool of $1.15 billion or another of $1.45 billion, according to Fitch Ratings. Depending on which sponsor chooses for securitization, Class A notes could amount to $1 billion and $1.27 billion for each collateral pool.

Agricultural equipment makes up 75% of the pool, while construction equipment makes up the remaining 25%, according to the rating agency.

Citigroup Global Markets is the lead underwriter of the deal, which will issue the notes through four A-note grades, according to Fitch. JDOT 2022-C ratings will receive an initial credit enhancement of 3.50%, the rating agency said. A subordinate certificate of 2.50% and which will constitute a percentage of the balance of the outstanding guarantee. The agreement also includes a non-declining reserve account of 1.00%.

Similar to previous transactions, the deal will incorporate a collateral discount feature that will provide additional levels of excess spread. The discount rate used is 8.40%, compared to 7.25% for the previous agreement, JDOT 2022-B.

The transaction structure also includes a collateral discount rate of 8.40%, while the duration-weighted bond coupons will be approximately 2.02% per annum. The weighted bond coupon is down from 2.55% in the previous transaction.

JDOT is pricing its deal in an environment of widening spreads, even for highly rated fixed rate assets. Spreads on Class A-4 notes, valued on swaps, had widened from 48 basis points in JDOT 2022-A to 80 million basis points on Curve I on a similar note class.

As for the underlying assets, some 17,683 loans underpin the collateral pool, which has an average balance of $65,062. On a weighted average (WA) basis, the assets have an original term of 56.5 months and a remaining term of 44.2 months, with an APR of 2.65%.

The pool is geographically diverse, with Texas representing the largest percentage of assets, 12.37%. After that, the states with the highest concentration of debtors are Iowa, Illinois, Missouri, and Nebraska 6.73%, 6.22%, 5.27%, and 5.22%, respectively.

Fitch Plans to Assign “F1+” Ratings to the $245.1 Million A-1 Notes; and ‘AAA’ at notes A-2 to A-4. The bonds have legal final maturities of October 16, 2023 to September 17, 2029, according to the rating agency.