KBRA Comments on Element Fleet Management Corp.'s Fourth Quarter Results

NEW YORK--()--Kroll Bond Rating Agency (KBRA) released a comment on the fourth quarter results of Element Fleet Management Corp. (TSX: EFN) (“Element Fleet” or “the Company”), which included a significant charge related to the Company’s 49.99% interest in 19th Capital Group LLC (“19th Capital”), a joint venture (“JV”) involved in leasing highway tractors and trucks in the U.S.

On October 3, 2017, KBRA affirmed the issuer rating of A- with a Stable Outlook for Element Fleet Management Corp. and also noted EFN’s exposure to 19th Capital as a key credit constraint. While the impact of the results of the JV on Element Fleet are considered credit negative, we note that the JV is considered a part of non-core operations and the Company’s overall exposure to non-core assets is relatively low (6%) in the context of its balance sheet. Moreover, the much larger core asset base is comprised of significantly lower risk fleet assets. The JV was established in an attempt to safeguard certain assets that were funded by legacy Element Financial Corporation and, subsequently, acquired by EFN given their fleet-like nature. Over recent quarters, EFN has been working to right-size the portfolio and reduce its overall exposure to the JV, which it intends to ultimately exit. However, 19th Capital represents a sizable risk to Element Fleet and prolonged, substantial losses or other noteworthy risk factors arising from the JV that negatively impact EFN’s financial condition could trigger a review.

The rating of Element Fleet reflects the Company’s franchise strength in North America and increasing market position with strong growth prospects, supported by a seasoned management team. The rating is also supported by a clear business focus on low risk fleet assets. The rating is constrained by Element Fleet’s historically rapid growth, overall exposure to economic conditions in the U.S. and Canada, leverage metrics, exposure to 19th Capital, and dependence on wholesale funding.

To access the comment, click here or visit www.kbra.com.

The ratings are based on KBRA’s Global Finance Company Rating Methodology published on November 28, 2017.

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About KBRA and KBRA Europe

KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

Contacts

Analytical:
Kroll Bond Rating Agency
Leah Hallfors, 301-969-3242
Associate Director
lhallfors@kbra.com
or
Marjan Riggi, 646-731-2354
Senior Managing Director
mriggi@kbra.com

Contacts

Analytical:
Kroll Bond Rating Agency
Leah Hallfors, 301-969-3242
Associate Director
lhallfors@kbra.com
or
Marjan Riggi, 646-731-2354
Senior Managing Director
mriggi@kbra.com