DBRS Morningstar Releases Auto Fleet Lease ABS Sector Outlook—Stable Despite the Coronavirus

DBRS, Inc. (DBRS Morningstar) released the commentary, “Auto Fleet Lease ABS Sector Outlook: Stable Despite Coronavirus.” The outbreak of COVID-19 has thus far had minimal impact on existing fleet lease transactions. Generally, the obligors in these transactions are large corporate entities. Pools included in securitization transactions are typically well diversified and are often tied to the industrial makeup of the overall U.S. economy.

The key highlights include:

— Historically, lessee defaults in fleet lease transactions, and correspondingly net losses, have been low. Supporting this are the typical high credit quality of obligors, along with the potentially long ramp-up period for new (unproven) lessees.

— It is possible that negative or sluggish GDP growth and increased unemployment could have a negative impact on the corporate ratings of some auto fleet lease obligors. However, given the expected duration and severity of the economic downturn, and the considerations discussed above, DBRS Morningstar does not expect any potential obligor downgrades to impair an obligor’s ability to perform its obligations under the lease.

— A mitigating characteristic of fleet lease assets relates to the depreciating book value of assets, which may serve to limit the probability of non-payment. To the extent that lessees decide not to lease new vehicles due to a recession or otherwise, they may choose to retain the current vehicles that are on lease.

Notes:

The commentary is available at www.dbrs.com.

For more information on this industry, visit www.dbrs.com or contact us at [email protected].