DBRS Confirms Fleet Leasing Receivables Trust, Asset-Backed Notes, Series 2010-1

As part of DBRS’s continued effort to provide market participants with updates on an annual basis, DBRS has today confirmed the ratings on the following notes (collectively, the Notes) issued by Fleet Leasing Receivables Trust (Fleet or the Trust):

– AAA (sf) Asset-Backed Notes, Series 2010-1, Class A-2a
– AAA (sf) Asset-Backed Notes, Series 2010-1, Class A-2b
– A (sf) Asset-Backed Notes, Series 2010-1, Class B

The ratings are based on the following factors:

(1) High levels of credit enhancement are available to protect the Notes. Credit protection to all Debt Obligations is provided by overcollateralization and a Cash Spread Account. The overcollateralization floored in April 2011 at $9,572,514 or 5.0% of the current collateral balance. The Cash Spread Account is non-amortizing and was funded with an amount equal to $8,974,232. In addition, the Class A Notes have preferential access to collections arising from the subordination of the Class B Notes, which were issued in an amount equal to $16,952,000, equivalent to 8.8% of the current collateral balance. The total current enhancement level for the Class A Notes stands at 18.5%.

(2) In addition to the enhancement amounts, for each lease not yielding enough interest to offset the Trust’s monthly cost of funds, a Required Yield Supplement Amount of $2,830,793 was calculated at the onset of the transaction and deposited in the form of cash to the Yield Supplement Account. Each month, the Required Yield Supplement Account is recalculated and the funds in the Account are replenished or released accordingly. Due to the amortizing nature of the portfolio and the prevailing interest rates, the Required Yield Supplement account stands as of April 30, 2011 at $1,379,232, and is equivalent to 0.7% of the collateral balance.

(3) Fleet customer accounts securitized are open-ended lease contracts, protecting the structure from residual value exposures.

(4) Delinquency, default and loss ratios continue to be strong. The delinquency ratio has been 0.54% on average since the onset of the transaction in December 2009, while the average default rate has been 0.09% and the average annualized loss ratio has been 0.02%. The only write offs experienced so far by the collateral pool are the result of an administrative issue combined with PHH Vehicle Management Services Inc.’s (PHH) credit policies rather than the inability of the obligor to pay. Overall, the strong performance is attributable to the customer base of PHH, the services provided by PHH and the importance of the assets leased to the businesses of PHH customers.

(5) 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. PHH has also been successful in diversifying its revenue base to include more fleet-management services.

The net proceeds of the Notes were used to finance a sale-sale-leaseback that was made between PHH, the LP, PHH LP and the Trust pursuant to two sale agreements, a purchase agreement and a lease agreement entered into at closing. PHH LP used the proceeds received from the Trust pursuant to the terms of the lease agreement in the form of pre-paid rent to fund the purchase of the Asset Interests and rights related thereto pursuant to a sale agreement between PHH, the LP and PHH LP at closing. Under the terms of the Trust Purchase Agreement, the Trust is entitled to an interest in the contractual proceeds from a portfolio of open-ended leases of individual corporate fleets of cars, light, medium and heavy-duty trucks and equipment leases (the Asset Interests) originated by PHH.

The structure permits the cash collections to be commingled with other funds by PHH on a monthly basis, subject to a minimum rating level of investment grade for PHH Corp. as Performance Guarantor. Each month, the Servicer is required to deposit all collection amounts received during the month from obligors in the portfolio of Asset Interests into a Collections Account in the name of the Trust. However, if PHH Corp. falls below the rating indicated above or there is a Servicer Default caused by the failure of PHH to make any payment or deposit within the specified time frame, among other things, PHH must remit collections to the Collection Account on a daily basis. Additionally, the structure includes a mechanism requiring the monthly payment be prefunded if the Performance Guarantor falls below a certain rating threshold. The structure is further supported by a covenant from PHH Corp. as the Performance Guarantor for any losses the Trust incurs as a result of commingling. Based on the current rating of PHH Corp., proceeds received by PHH are deposited to the Collections Account on a daily basis within two Business Days of receipt, however, prefunding of the account is not currently required.

In the event of a Servicer Default, the Servicer may be replaced by the Indenture Trustee. A replacement servicer that is not an affiliate of PHH Canada would be entitled to a replacement servicer fee. At closing, Wells Fargo Bank, National Association assumed the role of Backup Servicer and is expected to assume the role of Replacement Servicer if the Servicer is replaced.

If an event of Default occurs, the waterfall will pay all Class A Notes on a pro rata and pari passu basis and no payments with respect to interest or principal for the Class B Notes will be made until all Senior Notes have been repaid.

There is no revolving period in this transaction, effectively limiting any additional risk to the program that could normally occur with the addition of new accounts.

The performance and characteristics of the pool and the Notes are available and updated each month in the Monthly Canadian ABS Report (see Related Research below)

For more detailed information on the transaction structure, please refer to the rating reports of the Trust at www.dbrs.com.

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

The applicable methodology is Rating Canadian Auto Fleet Lease Transactions, which is available on our website under Methodologies.