Wheels Inc. is preparing its first auto fleet lease securitization in two years, according to a presale report published by Fitch Ratings.
Wheels SPV 2, LLC, Series 2014-1 will issue $500.3 million of notes backed by payments on a pool of open-end vehicle fleet lease contracts for cars, light-duty trucks, and other vehicles originated and serviced by Wheels, Inc. The transaction will be Wheels fourth U.S. public term securitization, and its first since 2012.
JP Morgan Securities is the lead underwriter.
The trust will issue a $122 million Class A-1 money market tranche with a preliminary F1+’ rating from Fitch and four tranches with a final maturity of March 2023: the $308 million Class A-2 notes are rated AAA’; the $53.6 million of Class A-3 notes are also rated AAA’, the $6.5 million Class B notes are rated AA’, and the $4.25 million Class C notes are rated A.’
While the pool backing the latest deal is generally consistent with the previous one, Fitch said in its presale report that a decrease in investment-grade obligors and increase in nonrated obligors has led to an increase in overall loss expectations.
However, the initial hard credit enhancement in the latest deal has increased relative to the previous one for the class A and B notes but declined for the Class C notes.
There is also minimal residual risk. The leases backing the latest deal are all open-ended, meaning lessees bear residual risk. Therefore, the trust is only exposed to wholesale market risk in the event of an obligor default. Even then, vehicle dispositions have largely resulted in gains relative to book value due to conservative amortization and substantial vehicle discounts obtained by Wheels.