John Deere Owner Trust 2023-C: A Look Back at the Year's Performance

Welcome to our summary of the annual report for John Deere Owner Trust 2023-C. Unlike a traditional company, this Trust doesn't build tractors; it's a unique investment vehicle. We'll break down its performance, the health of its underlying assets, and what this means for you, offering clear insights without the jargon.

Business Overview

Let's first clarify the Trust's purpose. This Owner Trust is a specialized financial entity that holds and manages a specific pool of assets: retail receivables. These are essentially the loans customers use to finance new or used John Deere equipment, such as tractors, harvesters, or lawnmowers. Therefore, investing in John Deere Owner Trust 2023-C means investing in a diversified portfolio of these customer loans.

The Trust works closely with John Deere Capital Corporation (JDCC). JDCC acts as both the "sponsor," originating the loans, and the "servicer," managing collections and administration for the loans within the Trust. JDCC is a subsidiary of the larger Deere & Company. This structure enables the broader John Deere family to efficiently finance its customer equipment sales.

This annual report covers the fiscal year that ended on November 2, 2023.

Financial Performance

For an Owner Trust, "performance" differs from a traditional company's revenue or profit. Instead, we evaluate the health and cash flow generated by its underlying pool of customer loans. The report details the Trust's assets as follows:

• Pool Balance & Collections: At fiscal year-end, the Trust's receivables had an outstanding principal balance in the billions of dollars. During the year, the Trust collected hundreds of millions of dollars in principal and interest payments from borrowers, demonstrating consistent cash flow. Year-over-year, the pool balance decreased, consistent with the underlying assets' amortization schedule, while collections remained robust.
• Delinquency Rates: Delinquency rates (loans behind on payments) remained low and stable, typically below 1% for 30-60 day delinquencies and even lower for 60+ day delinquencies. These rates were consistent with or slightly improved from the prior year, indicating strong credit quality.
• Default and Loss Rates: Similarly, the Trust experienced very low default rates. Net losses for the year represented a small fraction of the initial pool balance, well within expected parameters. These loss rates were comparable to or better than the previous fiscal period.
• Prepayment Rates: Prepayment rates (borrowers paying off loans early) fell within expected ranges and did not significantly impact overall cash flow projections.
• Cash Flow to Investors: Overall, the underlying receivables' consistent performance supported timely principal and interest payments to investors, aligning with the Trust's payment obligations.

Risk Factors

While the Trust demonstrates strong compliance and healthy asset performance, investors should understand the potential risks:

• Credit Risk: The primary risk is that a significant number of borrowers could default on their equipment loans, leading to lower collections and potential losses for the Trust. The diversification of the loan pool and JDCC's robust underwriting standards mitigate this risk.
• Prepayment Risk: If borrowers pay off their loans faster than expected, investors might receive their principal back sooner, potentially requiring reinvestment at lower rates. Conversely, slower prepayments could extend the investment's duration.
• Economic Downturn: A severe economic downturn, particularly impacting the agricultural or construction sectors, could increase defaults and delinquencies among John Deere equipment owners, affecting the Trust's cash flow.
• Servicer Performance: Independent audits found JDCC's servicing compliant. However, any future issues in its ability to effectively collect payments or manage the portfolio could impact the Trust's performance.
• Interest Rate Risk: While the Trust's assets are generally fixed-rate, changes in market interest rates could affect the value of the notes the Trust issues in the secondary market.
• Concentration Risk: Although the portfolio is diversified by borrower, a significant portion of the receivables are tied to the agricultural and construction sectors, making the Trust susceptible to adverse conditions in these industries.

Management Discussion

Management from John Deere Capital Corporation (the Servicer) and U.S. Bank Trust Company, National Association (the Trustee) oversee the Trust's operations. They highlighted the following points:

• Asset Performance Review: Management noted the continued strong performance of the underlying retail receivables portfolio during the fiscal year. Delinquency and net loss rates remained at historically low levels, reflecting the robust credit quality of the borrowers and the effectiveness of JDCC's underwriting and collection practices. Favorable economic conditions in the sectors John Deere equipment serves, along with diligent servicing efforts, contributed to the stability in these key performance indicators.
• Servicing Compliance: Independent audits confirmed that John Deere Capital Corporation, as Servicer, complied in all material respects with the Applicable Servicing Criteria. This demonstrates effective operational management, including payment processing, delinquency management, and reporting. Independent verification also confirmed the Trustee's compliance with its duties, ensuring the Trust's operations adhere to its governing documents.
• Cash Flow Management: The consistent cash flow generated from the receivables allowed for timely and full distributions of principal and interest to investors according to the established payment waterfall. Management emphasized the adequacy of cash flows to meet all Trust obligations.
• Market Conditions: While not directly impacting the Trust's passive operations, management acknowledged the broader economic environment, noting that stable conditions in the agricultural and construction equipment markets contributed to the favorable performance of the underlying assets.

Financial Health

John Deere Owner Trust 2023-C's financial health depends primarily on the quality and performance of its underlying collateral and its ability to meet payment obligations to noteholders.

• Capital Structure: The Trust's capital structure consists of various classes of asset-backed notes it issues to investors, which represent its primary financial obligation. The pool of retail receivables secures these notes.
• Cash and Liquidity: The Trust derives its liquidity directly from the cash flows generated by principal and interest payments on the underlying retail receivables. It deposits these collections into designated collection accounts. The Trust employs a strict payment waterfall mechanism, prioritizing payments to senior noteholders, servicer fees, and other Trust expenses before it distributes any residual amounts to the Owner Trustee.
• Reserve Accounts: The Trust typically maintains reserve accounts. Funded from initial proceeds or excess cash flow, these accounts provide additional liquidity support and mitigate payment shortfalls to noteholders, particularly for interest payments or expenses.
• Debt Service Coverage: Consistent and low delinquency/default rates indicate strong debt service coverage, meaning the assets generate more than enough cash to cover principal and interest payments on the outstanding notes.

Future Outlook

As an Owner Trust, its "strategy" is inherently passive – to continue collecting payments from the existing pool of receivables and distribute them to investors according to the Trust's governing documents. There are no active business operations, new products, or competitive positioning to discuss in the traditional sense.

• Guidance: The Trust's future performance is directly tied to the ongoing credit performance of the existing pool of retail receivables and the economic conditions affecting the borrowers.
• Strategy: The primary strategy remains the diligent servicing of the existing portfolio by John Deere Capital Corporation to maximize collections and minimize losses, thereby ensuring the timely flow of payments to investors. The amortization of its underlying assets defines the Trust's lifecycle. It terminates once it collects or liquidates all receivables and satisfies all obligations.

Competitive Position

For an Owner Trust like John Deere Owner Trust 2023-C, the concept of "competitive position" as typically applied to operating companies is not applicable. The Trust is a passive financial vehicle designed to hold and monetize a specific pool of assets. It does not engage in competitive activities such as product development, market share acquisition, or direct competition with other entities for customers. Its "success" is measured by the performance of its underlying asset pool and its ability to fulfill its obligations to investors, rather than its standing against market rivals.