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Oil & gas exposure rising again in Enterprise corporate fleet ABS

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Enterprise Fleet Management (EFM) is again boosting ties to small businesses in the oil and gas sector.

The company's next securitization of open-ended corporate vehicle lease contracts, the $1.08 billion Enterprise Fleet Financing (EFF) 2019-1, has higher exposure to energy-related companies (12.95%), than its previous deal, EFM 2018-3 (12%), according to rating agency presale reports. The exposure in the 2018-3 deal represented a decline from the prior two deals, 2018-2 (13.2%) and 2018-1 (12.8%).

Oil and gas has represented the largest industry concentration for EFM since 2012. The exposure had been steadily increasing since 2016, when it was only 5%, as energy companies recovering from the mid-decade slump in fuel prices stepped away from vehicle-fleet leasing services, according to Fitch.

Fitch said the reduced exposure in 2018-3 was not the result of Enterprise “actively shy away from this industry," but rather was "more indicative of less appetite within the [oil and gas] industry for fleet management.”

The rise in oil and gas exposure does not concerns either Fitch or S&P; both consider the collateral for 2019-1 to be sufficiently diverse, with a mix of 6,549 individual corporate lessees covering 38,974 leases with an average contract balance of $27,778.

The notes offering for EFF 2019-1 consists of two senior-note tranches of triple-A rated notes, plus a $250 million Class A-1 money market notes offering with ratings of F1+ by Fitch and A-1+ by S&P. The Class A-2 notes total $614.65 million and the Class A-3 notes are sized at $135.64 million, and share an October 2024 maturity.

All of the notes benefit from initial 8.6% credit enhancement (7.6% overcollateralization and a 1% reserve account) that is unchanged from recent EFF deals.

The notes are backed by a security interest in a loan issued by the trust to the sponsor’s vehicle management subsidiary, and used to finance fleet purchases. The cash flow from the loan’s proceeds from corporate lease payments will go toward paying the notes.

EFF corporate lease securitizations involve mostly light-duty trucks offered to the energy, manufacturing, construction and contracting industries. The latest deal has an 83% pool concentration of trucks, 11.51% of passenger sedans and 5.75% for medium-duty trucks. (Enterprise pools have historically not included heavy-duty trucks.)

Nearly all the vehicle contracts (99%, according to S&P) in the pool are closed-end leases that expose the obligor – not the trust – to the residual resale value of the autos. Historically, 38% of the vehicles leased by Enterprise are purchased by the lessee at the end of the contract (which average original terms of 44 months in the 2019-1 transaction).

But with closed-end agreements, the trust instead takes on credit-risk of lessees, of whom nearly all are unrated entities for which Fitch “conservatively” assumed a speculative-grade single-B rating for the obligor pool. But delinquencies and losses are historically low for EFF’s managed portfolio, which totaling $6.2 billion as of October 2018 (the end of the company’s 2018 fiscal year).

Last year, 30+ day late pays were up to 1.53% for the fiscal year ending October 2018 for EFM, compared to 1.28% in 2017.

S&P expects losses over the life of the deal to be in the range of 1.55%-1.75%, that's unchanged from EFF’s 2018-3 transaction. Fitch published only a stressed loss expectation of 11.1%, a slight decline from the prior deal’s 11.4% loss scenario.

EFM is a subsidiary of the Crawford Group, based in St. Louis. Crawford also controls Enterprise Holdings, parent firm of the Enterprise Rent-A-Car company.

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