Element Fleet Management Corp.

The stable outlook reflects S&P Global Ratings' expectation that over the next 18-24 months Element will maintain its industry-leading position in the automotive fleet leasing industry, continue to improve profitability through transformation initiatives, and maintain ongoing access to wholesale financing markets. We expect EBIT coverage of 1.70x-2.20x, debt to total capital of 75%-78%, and funds from operations (FFO) to debt of 30%-40%. We could lower the rating if the following were to occur on a sustained basis: EBIT coverage falls below 1.7x, FFO to debt falls below 30%, Debt to total capital rises above 82%, Element experiences difficulty obtaining stable funding for vehicle purchases, or Operational missteps or a weakened business climate results in a significant loss of client contracts

... vehicle fleets of all sizes should lead to predictable leverage and cash flows with steady growth. S&P Global Ratings expects Element Fleet Management Corp. to grow its revenue and earnings in the low-single digits, benefiting from a resilient U.S. economy and a client base that is diversified by industry. We expect debt to total capital to improve slowly, in line with its recent downward trend. Management intends to lower tangible leverage to below 6x by the end of 2020 by both building equity and lowering debt. We expect a 6x leverage ratio would equate to a debt to total capital ratio around 77%, a level we view as significant but still an improvement from the 6.74x reported at the end of September 2019. At the same time, we expect the company's balance sheet to remain largely encumbered. Element's transformation strategy should simplify the business and increase profits over the next three years.The company is selling its loss-making...

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