EFN Upgraded to Pfd-3(high) by DBRS

DBRS has announced:

DBRS, Inc. (DBRS) has today upgraded the ratings of Element Fleet Management Corporation (Element or the Company), including its Issuer Rating to BBB (high) from BBB. The trend on all ratings is Stable. Concurrently, DBRS has changed the name of Element Financial Corporation to Element Fleet Management Corporation on its website, reflecting the change in the Company’s legal name effective today following the legal separation of Element from its former commercial businesses which are now housed within ECN Capital Corporation. Today’s rating action concludes the Under Review with Positive Implications, where the ratings were placed on February 17, 2016.

From DBRS’s perspective, Element’s below-average risk profile is a positive and a key factor in the ratings. The Company’s risk profile is supported by its conservative credit risk appetite and its well-designed risk management framework. Credit risk, which is derived from the Company’s corporate client base, is Element’s primary risk exposure. However, with more than 60% of the client base investment grade corporates, historical credit losses in Element’s fleet management business have been very low, averaging approximately 0.03% of book value annually. Moreover, Element’s overall risk profile benefits from minimal exposure to asset risk, given the lease structure of the majority of the leasing portfolio.

DBRS considers Element’s funding and liquidity profile as appropriately managed and aligned with the asset base. However, DBRS views the reliance on secured forms of wholesale funding as limiting financial flexibility and a constraint on the ratings. Liquidity is largely comprised of unrestricted cash and capacity under its bank facilities, supported by solid cash flow from operations, which as of June 30, 2016, on a pro-forma basis, was more than sufficient to fund expected originations over the next year. DBRS views capitalization as solid given the credit risk profile, limited residual value exposure and strengthening ability to generate organic capital. On a pro-forma basis, tangible leverage is in line with industry peers at 7.5x, at June 30, 2016, and within maximum covenant limits.

I previously reported on the Review-Positive when it was announced by DBRS in February, 2016.

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

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