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Enterprise's next fleet lease ABS features more oil & gas exposure

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Enterprise Fleet Management’s next securitization has a slightly higher concentration of obligors in the oil and gas industry, and that’s not necessarily a bad thing.

The performance of the sector, which represents a large part of the lessor’s managed portfolio, has recently been improving, something that Fitch Ratings chalks up to a stable macroeconomic environment, global oil production cuts and
a survivorship bias among the remaining lessees.

In fact, Fitch thinks that a recent rise in delinquencies in Enterprise’s portfolio reflects the lower exposure to oil and gas obligors.

Their improved performance is also starting to translate into increased demand. That’s why the sector accounts for 10.5% of the collateral for the latest deal, up from 8.5% in the prior deal (but still lower than 2012-2015 levels ranging from 11.1%-15.5%).

Despite the “slightly positive” shift in delinquency performance, Fitch’s analysis continues to incorporate the possibility of weakness within the oil and gas sector, however.

Enterprise Fleet Financing 2017-3 is ultimately secured by payments on a pool of open- and closed-end vehicle fleet lease contracts for cars, light-duty trucks, and other vehicles, originated and serviced by Enterprise Fleet Management.

Proceeds from issuance of notes will be used to lend money to another entity, Enterprise Vehicle Management II, which will acquire fleets of vehicles for Enterprise Fleet Management’s customers. The total value of the collateral is expected to be $649 million.

There will be three tranches of rated notes: a $157 million money market tranche and two AAA rated term tranches totaling $443.1 million that mature in May 2023. All three tranches benefit form 8.66% credit enhancement.

RBC Capital Markets, LLC is the structuring lead and joint bookrunner.

Approximately 96.7% of the leases are open-end, meaning the lessees bear the residual risk. The remaining 3.3% of the leases are closed-end, under which the trust will bear the wholesale market risk.

Fitch’s ‘AAAsf’ loss expectation of 11.64% is lower than 11.65% in 2017-2 and 12.20% in 2017-1. Remaining term is higher in the 2017-3 pool and the concentration of unrated obligors is slightly higher as well. However, the derived recovery rates are slightly higher than previous transactions due to the move to a 15-month worst period average, leading to a lower RLR. The ‘AAAsf’ stressed loss expectation calculation is detailed in the chart above.

Trucks make up 84.8% of the vehicles in the pool, consistent with recent transactions and elevated in comparison to historical levels for the platform, which have ranged from 75.3%−85.8%. In its presale report, Fitch noted that a larger truck concentration could expose the trust to more "value volatility" in an increasing fuel price environment. However, this risk has lessened recently, with the improvement in vehicle fuel efficiency and the recent slide in oil prices to record lows.

In fact, trucks have been holding their value better than cars in the market for used vehicles.

Enterprise Fleet Management’s total managed portfolio grew 11% through 2017 to more than $5.4 billion from $4.8 billion in 2016. Annual growth has averaged around 10% for the past three years, down slightly from 20% growth observed in 2012 and 2013.

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