Fitch: U.S. Auto Fleet Lease ABS Performance Strong for 2016
Delinquencies and losses have been very low for auto lease fleet ABS since the inception of the market. A primary reason is minimal residual risk, according to Director Margaret Rowe. 'Leases on these transactions are primarily open-ended, which means the residual risk on these leases rests with the companies operating the fleets,' said Rowe.
The lack of residual risk in effect helped shield auto fleet lease deals from the residual losses that retail lease ABS had to contend with during the economic downturn of 2008-2009.
The primary deterrent to fleet lease deals is if an obligor defaults due to the open-ended nature of the leases. That said, obligor defaults have been low and well below Fitch's assumptions. What's more, even if an obligor were to file for bankruptcy, leases are often affirmed because they are necessary for the business to remain operating.
Vehicle dispositions arising from either obligor defaults or vehicle lease returns at lease end, have largely resulted in gains relative to book value to date. This is in part because lessors are able to purchase vehicles at lower prices due to manufacturer discounts, while also having aggressive depreciating setting policies.
Auto fleet lease ABS will likely endure fewer players in the space with little difficulty. There has been an increased amount of consolidation taking place among auto fleet lease companies since September 2011, most notably the Donlen/Hertz fleet merger and Element Financial's acquisitions of PHH Arval and GE Capital's fleet business.
Fitch's 'U.S. Auto Fleet Lease ABS Primer' is available at 'www.fitchratings.com' or by clicking on the above link. The report covers key industry and performance events and risks, fleet lease ABS performance and Fitch's approach to various analytical aspects of rating U.S. fleet lease ABS transactions.
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