Merchants Fleet Funding, series 2024-1 is preparing to issue $500 million in securitization bonds and repay them from a stream of payments on the Fleet SUBI portfolio, ultimately.
Merchants Fleet Funding will use the proceeds to issue a loan to another Merchants entity, the Merchants Automotive Group Finance, and MFF will have a first priority security interest in the beneficial ownership interest in the Fleet SUBI assets, according to a presale report from Moody's Ratings.
Of the 48,023 underlying leases in the pool, 87.3% of them are open end, Moody's said. The deal has a nine-month revolving period, and hard credit enhancement ranging from 22.46% on the class A notes to 5.05% on the class E notes.
Among the deal's credit strengths is a history of strong performance on auto fleets, with very low delinquency and net loss rates, and that performance extends to its asset-backed securities, pools too, Moody's said. Another positive is that 87.3% of the leases are open-ended contracts, where the lessee bears the residual value risk of the vehicle when the leases mature. That means the portfolio is only exposed to residual value risk on the leases in cases of default, Moody's said.
Yet there are some drawbacks, Moody's said. For one the leases are generally extended to small, medium and large corporations. Within the top 60 lessees of the master trust, just 57.52% of the trust, by securitization value, are extended to contract holders with a Moody's public rating or credit estimate, the company said.
The high concentration of industries in the pool is also a concern, Moody's said, noting that the top lessee in MFF, 2024-1 accounts for 7.1% of the pool, while the top 25 lessees represent 59.5% of the deal's securitization value. That is slightly higher than the concentrations that the rating agency observed in the fleet pool backing the Wheels Fleet Lease Funding and Chesapeake Funding, the rating agency said.
Business services is the top industry in the pool, by securitization value, representing 33.9% of the pool. That's another high concentration of the top industry when stacked up against comparison deals WFLF 1 (27.5%) and CF (15.1%).
Merchants Fleet will issue notes through five classes of notes, all of which have a legal final maturity date of April 2037. Moody's will assign Aaa to the class A notes; and Aa1 and A1 to classes B and C.
