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Barclays: Rental Fleet ABS Offers Diversity

Barlcays Capital analysts examined the relative value of rental fleet ABS in a report released last Friday.

They said that the 2009 to 2010 rental fleet ABS now trade at premium dollar prices, although still offer triple-digit spreads.

Analysts think that these deals give buyers an attractive opportunity to diversify away from generic consumer ABS and pick up incremental spead with only a limited increase in credit risk.

This recommendation continues from an earlier suggestion by analysts for investors trying to find yield to move away from traditional consumer asset classes into the more off-the-run sectors.

"We believe rental flett ABS presents an attractive opportunity to do just that," analysts said.

They cited the roughly $8.7 billion outstanding in this asset class, an expected pipeline of new-issue deals this year given scheduled maturities as well as the attractive spreads/yields versus other consumer ABS for marginal incremental credit risk.

According to Barclays analysts, the main risk that investors have in buying rental feet ABS is still in a rental car firm's bankruptcy and/or one or more vehicle manufacturers. There is also risk inherent in the health of the used-car market.

Analysts updated their analysis of rental fleet ABS structural features and credit enhancement. They found that on both fronts there is generally enough enhancement to withstand considerable declines in vehicle disposition proceeds under a stressed de-fleeting scenario.

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