DBRS Confirms EFN after Strategic Plan Announced

Element Fleet Management Corp. has announced:

a customer-centric plan to meaningfully improve financial performance, strengthen and de-risk the Company’s balance sheet, and position the business for growth.

The plan includes:
  • •A series of concrete actions to improve the customer experience and generate an estimated $150 million in run-rate pre-tax operating income improvements in the fleet management business by the end of 2020;
  • •A $150 million investment in the business to achieve those improvements, which will be funded in part by capital retained after a reduction in the Company’s quarterly common share dividend from $0.075 to $0.045, and the introduction of a dividend reinvestment plan;
  • •An agreement, subject to the satisfaction of certain conditions, to purchase the interests in the 19th Capital joint venture that Element does not already own for nominal consideration, and Element plans to undertake an orderly run off of 19thCapital’s assets over the next 36 months. In conjunction with this initiative, Element will recognize an after-tax charge of approximately $360 million in the third quarter reflecting a write down of the carrying value of its remaining investment in 19th Capital;
  • •Strengthening the Company’s investment-grade balance sheet through a $300 million offering of common shares via a bought deal transaction; and
  • •A clear accountability plan, including a Transformation Management Office run by a leading global consulting firm that will bring focus, support and accountability for the duration of the program, as well as regular reporting to track our performance

DBRS has announced that it:

has confirmed the ratings for Element Fleet Management Corp. (EFN or the Company), including the Company’s Long-Term Issuer Rating of BBB (high) and Short-Term Issuer Rating of R-2 (high). The trend on all ratings is Stable. The Intrinsic Assessment (IA) for the Company is BBB (high), while its Support Assessment is SA3. As a result, EFN’s final ratings are equalized with its IA.

The ratings consider Element’s action plan following an in-depth and broad review of three distinct workstreams completed by the new executive management team and the Board of Directors that should contribute to better operating performance going forward. Nonetheless, the plan does have execution risks, including the realization of synergies and efficiencies, as well as the successful wind down of 19th Capital without additional losses or costs to Element. The Company’s position as the market leader in North American commercial fleet as well as leading positions in Australia and New Zealand, its low risk balance sheet and well-aligned funding profile support the ratings. The ratings also consider the Company’s reliance on secured forms of wholesale funding, returns that are solid, but lag the peer group at the next rating level and elevated leverage.

The Stable trend reflects DBRS’s expectation that the Company will continue to produce solid earnings from its core fleet business as it executes the strategic plan, while maintaining strong asset performance. The Company’s ample available liquidity and good access to the capital markets are considered in the trend. The Stable trend also considers DBRS’s view that the long-term fundamentals for the commercial fleet industry will remain favorable supported by the continuing trend of large corporates outsourcing the management of their commercial fleets to save costs. Moreover, the increasing volume of data produced by vehicles that may be analyzed to increase driver productivity and the operating efficiency of the fleets requires scalable IT platforms, such as that offered by EFN, further underpinning demand for commercial fleet services.

Affected issues are EFN.PR.A , EFN.PR.C , EFN.PR.E , EFN.PR.G and EFN.PR.I .

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