A pool of vehicle lease contracts on cars, light duty trucks and other vehicles that Automobile Rentals has originated will secure the $874.6 million in notes. The vehicles appeared to be leased for company use in a wide variety of clients' industries.
Leases in the ARI Fleet Lease Trust 2023-A are open-ended, so the lessees bear almost all of the notes' residual risk, meaning the trust would only become exposed to wholesale market risk if an obligor defaults on its contract. Should a default in the transaction happen, past vehicle dispositions have largely resulted in gains relative to book value, according to a pre-sale report from Fitch Ratings.
Yet the notes do have one potential credit problem—the negative excess spread in the deal, as the interest rates on the issued notes is higher than the lease rates, according to Fitch. The deal does have increased levels of hard credit enhancement compared with previous transactions, however, which helps to offset that risk, Fitch said.
The ARI's publicly registered lease program also has a good track record. After 14 Rule 144a securitizations, only one of the paid off or outstanding transactions has experiences a loss, which was the 0.2% on the ARI Fleet Lease Trust 2021-A transaction, Fitch said. Other than that, ARI's managed lease portfolio had a peak net loss of only 0.04% in 2021, the rating agency added, and it reverted to 0.00% for the first three quarters of 2022.
All of the notes are fixed-rate.
MUFG Securities Americas is the lead underwriter on the deal, which will issue the notes from a senior-subordinate structure and differs from the 2022-A series in a number of ways, S&P Global Ratings points out.
Subordination for classes A and B notes increased to 4.25% and 2.50%, respectively, from 4.00% and 2.25% on the previous deal, the rating agency said.
The collateral pool is also slightly more diverse than the previous deal, S&P notes. The concentration of the top five obligors is 13.95%, compared with 14.55% on the 2022-A deal. The same is true for the top five industries, which account for 22.0% of the collateral pool, down a little from 24.5% in the 2022-A.
S&P says it hopes to assign ratings of 'A-1+' top the A-1 notes; 'AAA' to the A-2 and A-3 notes; 'AA+' to the class B notes and 'A+' to the class C notes. For its part Fitch says it expects extend similar ratings: 'F1+' to the A1 notes; 'AAA' to the A2 and A3 notes; 'AA' to the class B notes and 'A' to the class C notes.
