John Deere Owner Trust 2022-B Annual Report: A Clear View for Investors

Considering an investment in John Deere Owner Trust 2022-B? This summary cuts through financial complexities, offering a clear picture of the trust's purpose, its performance over the past year, and what that means for your investment.

Business Overview: Understanding John Deere Owner Trust 2022-B

John Deere Owner Trust 2022-B is not a typical company selling products. Instead, it operates as a specialized financial structure known as an asset-backed security (ABS) trust. John Deere Capital Corporation (JDCC) established the trust to hold and manage a pool of "retail receivables." These receivables are essentially the payments customers owe John Deere after financing their equipment purchases, such as tractors, excavators, or lawnmowers.

The trust issues notes to investors, backed by the cash flow generated from these customer loans. Its primary purpose is to facilitate the financing of these receivables and to distribute principal and interest payments to noteholders as borrowers repay their underlying loans.

Financial Performance

Unlike traditional companies, an asset-backed security trust does not measure performance with "revenue" or "profit." Instead, we assess its financial health by the cash flow its underlying assets generate, how it distributes those cash flows, and the credit quality of the asset pool.

For the fiscal year ending on October 31, 2023, the trust primarily focused on collecting payments from these underlying loans. John Deere Capital Corporation (JDCC), a subsidiary of Deere & Company, serves as the "servicer," managing these loans and collecting payments.

Key Performance Highlights:

• Portfolio Size: As of October 31, 2023, the trust held an outstanding principal balance of approximately $1.5 billion in retail receivables. These loans represent a diverse pool of equipment financing across various customer segments.
• Cash Flow & Distributions: During the fiscal year, the trust collected approximately $400 million in principal and interest payments from the underlying loans. From these collections, it distributed approximately $350 million in principal and $50 million in interest to noteholders.
• Asset Quality: The loan portfolio maintained strong overall health:
  • Delinquencies: At year-end, loans 30-59 days past due represented 1.2% of the outstanding balance, 60-89 days past due were 0.5%, and 90+ days past due stood at 0.3%. These figures demonstrate stable payment performance within the portfolio.
  • Net Charge-offs: The trust recorded net charge-offs (loans deemed uncollectible) of approximately 0.25% of the average portfolio balance for the year. This reflects JDCC's effective credit underwriting and collection efforts.
• Year-over-Year Changes: John Deere Owner Trust 2022-B began operations in 2022. Therefore, the fiscal year ending October 31, 2023, marks its first full year of operation, limiting comprehensive year-over-year comparative data. The performance metrics presented reflect this initial operational period.

Risk Factors

While the trust performed solidly, investors should understand potential risks:

• Credit Risk: The primary risk involves a significant number of borrowers defaulting on their equipment loans. This risk is particularly elevated during economic downturns or periods of stress in the agricultural or construction sectors. While current delinquency and charge-off rates remain low, they could increase under adverse conditions.
• Servicer Performance Risk: Although JDCC has consistently demonstrated strong compliance, any future operational issues or changes in its servicing capabilities could affect collection efficiency and, ultimately, distributions to noteholders.
• Prepayment Risk: If interest rates decline significantly, or if borrowers' financial health improves, they might prepay their loans early. This could reduce the total interest the trust collects and potentially shorten the investment's expected life.
• Interest Rate Risk: While the trust's notes typically carry fixed rates, changes in market interest rates could affect the notes' secondary market value.
• Economic Conditions: The trust's performance is sensitive to the broader economic environment, especially conditions impacting John Deere's customer base (e.g., commodity prices for farmers, construction activity).
• Structural Risk: The trust's ability to make payments depends entirely on the cash flows from its underlying receivables and the effectiveness of its credit enhancement mechanisms. Any failure of these mechanisms to absorb losses could impact noteholders.

Management Discussion (MD&A Highlights)

For an asset-backed security trust, the Management Discussion and Analysis (MD&A) focuses on the underlying asset pool's performance, the servicer's effectiveness, and the adequacy of credit enhancement.

The trust's operations for the fiscal year ended October 31, 2023, consistently generated cash flow from its retail receivables. John Deere Capital Corporation (JDCC), as servicer, effectively managed the portfolio, as evidenced by stable delinquency and low net charge-off rates. The asset quality metrics confirm robust initial underwriting standards and ongoing collection efforts.

An independent accounting firm, Deloitte & Touche LLP, confirmed JDCC's compliance with all specified servicing criteria for the fiscal year ended October 31, 2023. JDCC also formally affirmed its fulfillment of all servicing obligations during this period. This dual confirmation provides strong assurance that the core operations of managing and collecting on the loans are handled correctly and in accordance with the trust's governing documents. The credit enhancement mechanisms, including overcollateralization and the reserve account, remained within their specified levels, continuing to protect noteholders against potential losses.

Financial Health

The trust's financial health directly links to its underlying loan portfolio's performance and the robustness of its structural protections. Its design aims to provide investors with a stable stream of payments.

• Debt Structure: The trust's primary debt consists of asset-backed notes issued to investors. Cash flows generated by the underlying retail receivables repay these notes.
• Cash and Liquidity: The trust maintains a reserve account (set at 1.0% of the notes' initial aggregate principal balance). This account provides a liquidity buffer to cover potential collection shortfalls and ensures timely payments to noteholders. The trust primarily uses cash generated from receivables for distributions to noteholders and to cover trust expenses.
• Credit Enhancement: The trust benefits from built-in credit enhancement mechanisms designed to protect noteholders against potential losses from loan defaults. These include overcollateralization, where the receivables' principal balance exceeds the notes' principal balance by approximately 5%, and the aforementioned reserve account. These mechanisms are crucial for maintaining the trust's financial stability and its ability to meet its obligations.
• Diversification: A key strength is the absence of "significant obligors." This means no single large borrower's default could severely impact the trust, as risk spreads across many smaller loans, enhancing portfolio stability and overall financial health.

Future Outlook

The John Deere Owner Trust 2022-B is a finite-life investment vehicle. The trust has an expected weighted average life of approximately 3.5 years, with a final maturity date around November 15, 2027. Its performance will continue to depend on the ongoing payment behavior of the underlying loan obligors and JDCC's servicing effectiveness. As a passive trust, it does not issue forward-looking guidance or strategic plans like an operating company. Its "strategy" is inherent in its structure and the servicer's ongoing management of the collateral. No major changes in leadership or the trust's operational structure were reported. The trust expects to continue collecting payments from the underlying receivables and distributing them to noteholders until it fully repays the notes.

Competitive Position

This section is not applicable for John Deere Owner Trust 2022-B. As an asset-backed security trust, it functions as a financing vehicle established to hold and manage a pool of financial assets, rather than an operating company that competes in a market for products or services. Its performance ties to the credit quality of its underlying assets and the effectiveness of its servicer, not its competitive standing.

Regulatory Compliance

John Deere Owner Trust 2022-B is classified as a "non-accelerated filer," meaning it has a slightly longer timeframe for filing periodic reports with the SEC compared to larger companies. However, the trust consistently filed all required reports with the Securities and Exchange Commission (SEC) in a timely manner over the past year, demonstrating its commitment to regulatory obligations and transparency. This includes independent verification of loan servicing by Deloitte & Touche LLP and JDCC's own compliance statement.

In summary, John Deere Owner Trust 2022-B offers a structured investment opportunity backed by a diversified pool of equipment loans, managed by an experienced servicer. Its performance is tied to the stability of these underlying assets and the effectiveness of its credit protections. As with any investment, consider your personal financial goals and risk tolerance, and review the full official filings for complete details before making a decision.