Why wait? Enterprise uses fresher collateral in next corporate fleet ABS

Enterprise Fleet Management’s third securitization of the year
features leases with even less seasoning that the prior transaction, according to rating agency presale reports .

The $600 million Enterprise Fleet Financing 2018-3, which is being rated by Fitch Ratings and S&P Global Ratings, is backed by EFM-managed corporate fleet leases with only two months of seasoning. That is slightly below the three-month mark of its most recent transaction in July, and just half of the typical four-to-seven month seasoning for the Enterprise Fleet Financing shelf.

Proceeds from the securitization will fund the acquisition of commercial vehicles for open-ended leases with a weighted average term of 44 months.

As a result of younger collateral, the average lease balance of $29,025 is higher than recent transactions, involving 22,390 leases spanning across 5,177 corporate lessees carrying an average multi-vehicle balance of $125,531.


Three tranches of senior notes will be issued in the transaction: $153 million of Class A-1 money-market notes are provisionally rated A-1 by S&P and F1+ by Fitch; and two term tranches rated triple-A that mature in 2020, $363 million Class A-2 notes and the $84.1 million in Class A-3 notes..

Initial credit enhancement is 8.66%, in line with EFF 2018-2 (8.65%) and includes 7.66% overcollateralization and a 1% cash reserve account.

The deal also benefits from 3.45% annual excess spread, or the difference between interest payments on the notes being issue and interest received on the collateral.

Mizuho Securities is the lead underwriter.

Most of the vehicles (more than 89%) financed in the transaction are light- and heavy-duty trucks dominated by Ford, Chevrolet and Dodge models. The heavy truck concentration is a reflection of the industry concentration that has traditionally focused on oil & gas services (12.5% of the existing collateral pool, down slightly from 13.1% in the firm’s second securitization this year).

Most of EFM’s client base are unrated small- and medium-enterprise firms that would “typically” carry higher loss rates than investment-grade firms. But “the strong performance of EFM’s pools is driven by other factors such as conservative underwriting and depreciation policies on vehicles,” according to S&P. With closed-end leases, companies leasing the vehicles assume the aftermarket resale value risk.

“While a significant portion of the series 2018-3 pool contains leases with final payments exceeding 20% of the capitalized cost, which could result… in some incremental default risk associated with high final payments, we consider this risk minimal, given the total credit enhancement available,” S&P’s report stated.

S&P expects losses to be in the range of 1.55%-1.75% over the life of the deal, unchanged from Series 2018-2.

Fitch projected losses cumulative net losses under a “stressed” scenario to be 11.53%; it did not provide an estimate for losses in a base-case scenario.

EFM’s managed portfolio exceeded $6.07 billion as of July 31 of this year, up from $5.4 billion at the same point in 2017. (It was just $2.2 billion in 2011. S&P credits EFM’s lease portfolio for maintaining low losses, “even during the 2008-2009 recession.”

Enterprise Fleet Management is owned by The Crawford Group, which also holds sister firm Enterprise Holdings, the nation’s largest rental car company.


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