Wheels Inc., one of the nation’s oldest and largest vehicle fleet lessors, is back in the securitization market after a year’s absence with a pool of corporate lease contracts.
Wheels SPV 2, LLC, Series 2016-1 is a $512.6 million notes offering backed by an aggregate balance of $529.9 million in light-duty truck and car open-end lease contracts to 268 corporate lessees.
The offering is split among six classes of notes, including four Class A notes tranches that make up the bulk of the offering.
Standard & Poor’s and Fitch Ratings have affixed preliminary ‘AAA’ ratings to the Class A-2 notes totaling $275 million – the largest slice of the capital stack – as well as a $70.1 million Class A-3 notes tranche. The agencies also assigned short-term F1+ (Fitch) and A-1+ (S&P) ratings to a one-year, $131 million money-market Class A-1 series of notes.
A fourth tranche of Class A notes sized at $21.2 million has also received an ‘AAA’ rating from Fitch, but S&P has decided against issuing a provisional rating for those notes. Without the rating, S&P has deemed the A-4 notes a credit support vehicle for the more senior notes, and has thus assigned a larger credit enhancement level (10.3%) to the senior notes vs. the 7.15% level that Fitch has reported in its presale report published Wednesday.
All of the notes are nine-year notes outside of the A-1 class.
The notes are backed by 22,166 leases that have average balances of $23,906, with the average obligor balance hitting $1.98 million. The leases have a weighted average seasoning of five months and 59 months remaining on lease terms.
About 33.9% of the leases in the pool have a floating rate, with the remaining 66.1% of the pool have either a fixed rate or a rate that will not decrease, according to Fitch.
This is the sixth vehicle securitization by Wheels, which will use the proceeds for general funding purchases.
The open-end nature of the contracts places the residual risk with lessees, with the trust only exposed to the whole market risk of the vehicle’s value in the event of defaults. However, Fitch notes, Wheelse has “largely” and historically experienced gains relative to book value on repossessions because of its depreciation policies and “substantial” discounts it gains from manufacturers.
Wheels’ previous transaction was a $512.7 million ABS bonds package issued in May 2015.
As with last year’s deal, JPMorgan Securities is the lead underwriter.