Moody's, a leading credit rating agency, has upgraded four
subordinate asset-backed securities (ABS) from GE Equipment
Transportation LLC, the debt issuing entity of
General Electric Company
) General Electric Capital Corporation (GECC). In addition to
upgrading Series 2012-2 and Series 2013-1, Moody's also affirmed
the senior securities of these transactions. The upgrade will
affect approximately $954 million worth of ABS. The transactions
are securitizations of transportation equipment loans and leases
originated and serviced by GECC.
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ABS are financial instruments backed by a pledge of the issuing
entity's assets, typically issued in classes of declining
seniority. In the GE Equipment Transportation LLC, Series 2012-2
and Series 2013-1 issues, the underlying collateral pool of
assets primarily comprise equipment loans and security interests
in the related transportation equipment. The ratings of the notes
address their credit quality and signify the likelihood of the
timely repayment of interest and the ultimate payment of
principal pursuant to their terms.
GE Equipment Transportation LLC issued six classes of securities
under both Series 2012-2 and Series 2013-1. Moody's affirmed the
Aaa ratings held by the senior securities belonging to Class A-2,
A-3 and A-4 of both the issues, which is the rating awarded to
the securities of the highest quality with the lowest level of
credit risk. Moody's upgraded the rating for subordinate
securities belonging to Class B and C of the Series 2012-2 issue
to Aaa due to low credit risk. For Series 2013-1, Class B
securities were upgraded to Aaa from Aa1, and Class C securities
were upgraded to Aa1 from Aa3.
Reasons for Upgrade
The upgrades were prompted by a reduction in lifetime net loss
expectations for the underlying collateral pools as a result of
better-than-expected performance. Moody's expects the collateral
pools to incur lifetime cumulative net losses of 1.00% of initial
pool balance, compared to prior expectations of 1.75% and 1.50%
on the 2012-2 and the 2013-1 issues, respectively.
In order to improve the credit quality and subsequent ratings
assigned to the notes, issuers often use credit enhancements.
Credit enhancements available to these securities, other than
subordination, include overcollateralization (OC), non-declining
reserve accounts and excess spread. Every month, half of the
excess cash available to release to the issuer is applied to
build the OC, which provides further support to the securities.
The upgrade might also have been influenced by a stable recovery
in the U.S. macroeconomic environment. Going forward, the
transportation and construction markets, being major drivers of
performance of the collateral, look set to benefit from increased
economic activity, low interest rates and steady job growth.
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