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 management industry, continue to improve profitability through delivery on transformation initiatives, and maintain ongoing access to wholesale financing markets. We expect EBIT coverage of 2.0x-2.5x, debt to total capital of 70%-80%, and funds from operations (FFO) to debt of 40%-50%. We could lower the ratings 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

...Origination volume has been hurt because of microchip shortages at automobile OEMs. An order backlog is building which we expect to convert to revenue in late 2022 or early 2023. OEM production delays arising from global microchip shortages have lengthened the order-to-origination cycle for new vehicles, suppressing origination volumes and related revenue. We believe this primarily impacts short-term supply, and not short- or long-term demand. The company reports that order backlogs have grown to record highs, and we expect originations to return to historical levels as microchips become more readily available to OEMs (see Related Research). We expect management will continue stock buybacks as tangible leverage reaches the company's stated target of 6x. Element reached its stated target tangible leverage of 6.0x through building equity and lowering asset-back securities (ABS) debt. We expect a 6.0x tangible leverage ratio would equate to a debt to total capital ratio between 70% and 80%...

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