Element Fleet Management is issuing another $400 million of notes backed by feet leases from its master trust.
Like the prior two deals, Chesapeake Funding 2018-3 will issue $400 million of notes backed almost entirely by open-end leases whereby lessees bear the risk of a decline in the value of the vehicles when they come off lease. Therefore, the trust is only exposed to wholesale market risk in the event of obligor default.
However, closed-end leases may be added to the trust during the revolving period, during which no principal on the notes will be repaid, with residual exposure limited to 7.5%. This revolving period is six months, down from seven months in the prior transaction.
Fitch Ratings and Moody’s Investors Service consider the primary driver of default probability to be for this pool to be the credit quality of the lessors and the lease terms. Of the pool, 73.3% are publicly rated by an and approximately 53.6% carrying an investment-grade rating. The weighted average rating of the rated pool is BBB/Ba2, unchanged from the two deals completed earlier this year.
Four tranches of notes will be issued in the transaction: Fitch and Moody’s Investors Service all expect to assign triple-A ratings to two senior tranche, one fixed-rate and one floating-rate, which benefit from 11.25% credit enhancement. This enhancement consists of 3.09% overcollateralization, a 1.03% reserve fund, and the subordination of the other tranches of notes.
RBC Capital Markets is the lead arranger.
Proceeds from issuance of the notes will be used to make loans to Chesapeake Finance Holdings; these loans will be used to acquire fleet leases from Element.
The aggregate book value of lease assets allocated to the SUBIs is approximately $6.1 billion. The CF II 2018-3 invested percentage, representing the CFII 2018-3 noteholders’ proportionate share of the assets, is about 6.8%.
Just 0.06% of leases are closed-end, down from 0.08% and 0.10% for the two prior deals issued via the master trust.
The leases have a weighted average remaining term of 44 months, unchanged from the prior two deals.
There is a slightly higher concentration in the top lessees; the largest accounts for 4.39%, up from 4% and 3.61% in the two prior deals, and the top two account for 7.46%, up from 6.74% and 7.15%.
However, the pool is less heavily concentrated in the top lessors than other fleet lease transactions that Moody’s rates, such as deals sponsored by Hertz. Moody’s also considers the deal to be more geographically diverse than its peers.
Element is North America's largest publicly traded fleet management company. It offers fleet management services including acquisition, financing, program management and remarketing.
