Wheels’ next fleet ABS backed by fewer strong credits

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Wheels, Inc., a prominent lessor of corporate vehicle fleets, is planning a $512.2 million securitization of open-end leases it originates and services for light-duty trucks, cars and other vehicles.

Wheels SPV 2 LLC Series 2017-1 is the company’s first asset-backed transaction in a year and its seventh overall The company will use the proceeds for general funding purposes, according to a presale report from Fitch Ratings.

The deal’s structure is largely similar to that of prior transactions, which are issued an average of once a year. Series 2017-1 has four classes of senior notes backed by a pool of leases primarily (68.6%) to rated firms, over half (58.4%) of them investment-grade.

The capital stack includes a $132.5 million money market tranche with a preliminary F1+ rating from Fitch Ratings. Fitch has assigned AAA ratings to the remaining senior bonds: a $281.9 million Class A-2 tranche; a $62.4 million Class A-3 series, and $16 million in Class A-4 notes.

All of the senior notes benefit from 7.98% credit enhancement, which is slightly above last year’s 7.15% Class A enhancement. The higher CE comes mostly through an increased subordination benefit of the senior notes – but is below that of Wheels' 2015 and 2014 transactions.

Excess spread is slightly down at 0.35%, compared with 0.4% and 0.42% in the two prior deals.

The aggregate balance of the contracts is $529.7 million, with an average obligor balance of $2.06 million and an average individual balance of $24,430 for the 21,684 leases in the pool. The contracts are with 256 corporate and government clients with sales and service fleets, involved in a diversity of industries including insurance, agriculture, broadcast media and pharmaceuticals.

Because they are open-end contracts, which allow lessees fewer restrictions on length of service of the agreement, the residual risk of the vehicles rests with lessees when they return vehicles.

The original terms of the contracts average 56 months, with seven months of seasoning.

Fitch noted that, while investment grade firms make up a majority of obligors, the percentage of these higher-rated companies has declined from the 64% level in Wheels’ 2016 transaction.

Fitch has projected a net loss expectation of 7.1% on the deal.

The family-owned Wheels, which was formed in 1939 and based in suburban Chicago, is the fourth-largest corporate fleet lessor in the U.S., according to Fitch.

Mizuho Securities USA was lead underwriter.

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