Element marketing $500M in fleet lease ABS

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Element Fleet Management’s newly consolidated master trust is issuing $500 million in bonds backed by open-ended commercial fleet leases that the Toronto-based company originates in the U.S.

Chesapeake Funding II 2017-3 will issue six classes of notes, including a split fixed/floating rate Class A tranche class totaling $462.72 million and benefiting from 11.23% credit enhancement. Those notes were assigned provisional trioke-A ratings from Kroll Bond Rating Agency, DBRS and Fitch Ratings on Monday.

The transaction is being arranged by RBC Capital Markets.

The collateral pool of 275,108 leases from 949 obligors has an initial receivables balance of $5.58 billion in leases primarily for light-duty trucks for companies in consumer goods and services, pharmaceutical and medical device sales and light industrial sectors.

The average original terms of the contracts (63 months) includes 19 months of weighted average seasoning – which is greater than recent comparable fleet lease securitizations by competitors Wheels Inc. (7 months) and ARI Fleet Management (12 months).

However, many of the contracts were older leases originally securitized by Element’s former Chesapeake Funding LLC trust that was acquired in Element’s buyout of PHH Corp. in 2014 and retired in April.

Notes from the former Chesapeake trust have been paid off, with existing assets from those securitizations merged into both the Chesapeake 2017-2 transaction in May and the current deal.

The issuance is only the second through Chesapeake Funding II, which was established in 2015 after Element acquired the U.S. fleet leasing and management business of GE Capital Corp. That business is now operated under its Gelco subsidiary.

The new trust represents vehicle fleet leases to large, commercial obligors originated by Gelco, which had a managed portfolio of $4.1 billion in leases as of March 2017.

Gelco net losses have been minimal and not exceeded more than 0.01% since 2014 due to the strong credit quality of its obligors, according to ratings agency reports. Over 70% of the lessees are publicly rated companies, with 49.8% carrying investment-grade ratings5

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