OREANDA-NEWS. Fitch Ratings has affirmed the long-term Issuer Default Rating (IDR) of Wheels, Inc. (Wheels) at 'A'. The Rating Outlook is Stable. In addition, Fitch has also affirmed Wheels' short-term IDR and commercial paper rating at 'F1'.

The rating actions were taken in conjunction with a broader industry review of commercial fleet leasing companies. A full list of rating actions is provided at the end of this press release.

KEY RATING DRIVERS

IDRS AND COMMERCIAL PAPER
Wheels' IDRs and commercial paper rating are supported by the company's solid franchise and position as a leading provider of fleet leasing and management services in North America, as well as its solid portfolio performance through various economic cycles, sufficient liquidity and consistent operating cash flow generation over time. These factors are counterbalanced by the inherent cyclicality of the commercial fleet leasing business, Wheels' reliance on secured, wholesale funding, and modestly higher balance sheet leverage compared to other leasing companies.

Operating performance has remained stable, reflecting modest revenue growth and stable earnings over the last several years. During the first nine-months of 2015 (9M15), Wheels reported year-over-year increases in revenue and earnings of 1.5% and 2.8%, respectively, on continued fleet growth and signed customer backlog. Fitch expects operating performance to remain stable over the near to medium term, as Wheels continues to grow its customer base, increase product and service penetration, and sign new vehicle backlog amid a low-growth economy.

Asset quality remains a key rating strength for Wheels as the company has experienced an average of one-basis point of annual net losses over its entire 76 operating history. The overall portfolio is diversified by customer and the credit quality of the customer base is solid. The top 10 customers have an average credit rating of 'A-', based on a composite of Nationally Recognized Statistical Rating Organizations' (NRSRO) and Wheels' internal ratings. Some industry concentrations exist, but they are largely mitigated by the strong underlying credit quality within these concentrations and focus on industry sectors and sub-sectors for which the continued use of commercial fleet leasing is more essential to their business models. Industry concentrations, vehicle composition, and overall customer credit quality have remained relatively consistent over time.

The lease portfolio is comprised predominately of open-end leases, which transfer residual value risk of the vehicle to the lessees. The essential business use of the vehicles leased by Wheels' customers also helps to mitigate the probability and severity of lessee default under the leases. As a result, net losses have been minimal over time. Given Wheels' historically low loss experience, Fitch believes that current loss reserves are more than adequate and appropriate.

Currently, Wheels has sufficient liquidity given balance sheet cash, operating cash flow generation and availability under its various credit facilities to support upcoming debt repayment and vehicle purchases. While operating cash flow is generally redeployed toward fleet purchases, Fitch believes Wheels can minimize its capital expenditures and redirect cash flows toward debt repayment, if necessary, should another market stress occurs. Given the consistent operating cash flow generation over time and sufficient liquidity resources, Wheels has never used this tactic in the past.

The company is debt-funded entirely on a secured, wholesale basis, which has helped the company achieve match funding from a rate, duration and spread perspective but remains a rating constraint, in Fitch's view. Generally, Fitch believes Wheels' funding flexibility is somewhat limited given the lack of unsecured debt in its funding mix, and lack of access to the public equity markets. However, Wheels has access to a diverse mix of funding sources, including bank credit facilities, revolving and term securitizations, private placement and customer financing facilities, which Fitch views as sufficiently mitigating concentration risk, should some sources of funding dry up or become cost prohibitive in the event of a future market stress.

Fitch views Wheels' leverage as modestly higher than other leasing companies. Leverage, on a debt to tangible equity basis, was 6.5x as of May 31, 2015, which is modestly lower than the long-run average of 6.9x. From a cash flow perspective, measured on the basis of debt to EBITDA, leverage has remained relatively stable over time, amounting to 2.0x as of May 31, 2015, and consistent with the long-run average. Fitch believes that Wheels' minimal loss experience and the open-end lease structure helps to offset the modestly higher leverage relative to peers.

RATING SENSITIVITIES

IDRS AND COMMERCIAL PAPER
Upward rating momentum is viewed as limited given Wheels' current rating levels, as well as the company's monoline business strategy, secured funding profile and sensitivity to general economic conditions. Although not expected based on Wheel's current financial strategy, a material increase in unsecured funding, combined with a meaningful decrease in balance sheet leverage, could lead to upward rating momentum.

Conversely, negative rating momentum could be driven by significant customer departures, which would negatively impact lease revenues and ultimately core operating cash flow generation. Loss of competitive position, material increase in losses from customer bankruptcies, and/or a substantial increase in leverage from current levels could also put negative pressure on Wheels' ratings.

Based in Des Plaines, Illinois, Wheels is one of the largest commercial fleet leasing and management companies in North America. Wheels is a private company and 100% owned by Frank Consolidated Enterprises. As of May 31, 2015, the company had approaching 300,000 vehicles under management.

Fitch has affirmed the ratings as follows:

Wheels, Inc.
--Long-term IDR at 'A';
--Short-term IDR at 'F1';
--Commercial paper at 'F1'.

The Rating Outlook is Stable.