DBRS Finalizes Provisional Ratings of Fleet Leasing Receivables Trust Series 2010-1 Asset-Backed Notes

DBRS has today finalized the following provisional ratings of Fleet Leasing Receivables Trust (the Trust):

– R-1 (high) to the Asset-Backed Notes, Series 2010-1, Class A-1a (the Class A-1a Notes)
– R-1 (high) to the Asset-Backed Notes, Series 2010-1, Class A-1b (the Class A-1b Notes)
– AAA to the Asset -Backed Notes, Series 2010-1, Class A-2a (the Class A-2a Notes)
– AAA to the Asset -Backed Notes, Series 2010-1, Class A-2b (the Class A-2b Notes)
– “A” to the Asset -Backed Notes, Series 2010-R1, Class B (the Class B Notes)

On closing, the Trust acquired a portfolio of open-ended lease receivables, including retail cars; light, medium and heavy-duty trucks; and equipment such as forklifts and truck bodies. The lease receivables were originated by PHH Vehicle Management Services Inc. (PHH), which operates a fleet-leasing business for commercial customers located across Canada.

The Class A-1a Notes, Class A-1b Notes, Class A-2a Notes, Class A-2b Notes and Class B Notes (collectively, the Notes) are pass-through securities, with monthly payment of interest and principal based on actual cash flows from the portfolio of receivables. Principal on the Notes will be repaid sequentially, with the Class A-1a Notes and Class A-1b Notes being paid prior to repayment of any principal on the Class A-2a Notes and Class A-2b Notes and the Class A-2a Notes and Class A-2b Notes being paid prior to repayment of any principal on the Class B Notes. The Class A-1a Notes and Class A-1b Notes are rated R-1 (high), the Class A-2a Notes and Class A-2b Notes are rated AAA, and the Class B Notes are rated “A,” based on full repayment of the Notes by their respective legal final maturity dates.

The final ratings incorporate the following considerations:

(1) Similar assets originated by PHH over the past several years show excellent performance. Historical loss performance on similar assets shows negligible write-offs and low levels of receivables that are 60 days or more past due (see Appendix A in the DBRS report published today for further details).

(2) There is a high level of credit enhancement available to support the Notes: 4.75% of overcollateralization, non-amortizing cash equal to 2.25% of the initial collateral balance, Class B Note subordination of 4.25% and a Required Yield Supplement Amount of approximately $2.8 million, all calculated as a percentage of the initial collateral balance on closing.

(3) PHH has significant experience in originating and managing a diverse pool of fleet customers, with a high percentage of customers with an investment-grade rating, averaging 65.0% since 2004. PHH has also been successful in diversifying its revenue base to include more fleet-management services.

(4) Typical of fleet portfolios, the structure is exposed to higher-than-average obligor and industry concentrations than in auto retail lease or loan structures. This exposure can lead to more significant losses than a retail pool of auto leases or loans. However, this risk is mitigated in part by the high concentration of investment-grade obligors. Additionally, the vehicles are important to the obligors as they represent a vital part of the service-delivery component and revenue-generating process of their businesses.

Stress tests using assumptions, including replacement servicer fees and large increases in delinquency and credit losses, indicate that credit enhancement provides sufficient protection to the Notes to warrant the ratings assigned.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Canadian Auto Lease Transactions, which can be found on our website under Methodologies.

This is a Structured Finance rating.