Element Fleet Management Corp.

The stable outlook reflects S&P Global Ratings' expectation that over the next 18-24 months, despite macroeconomic headwinds,Element will maintain its industry-leading position in the automotive fleet management industry, stable operating profitability, and ongoing access to wholesale financing markets. We expect EBIT coverage of 2.4x-3.0x, debt to total capital of 70%-80%, and funds from operations (FFO) to debt of 40%-50%. 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 and reduced profitability. We could raise the ratings if we expect EBIT coverage to remain closer to 3.0x

...Origination volume continues to lag due to supply chain disruption at automobile original equipment manufacturers (OEMs), and order backlog is building, which we expect to convert to revenue in 2023. There is a high likelihood of extended supply chain-related bottlenecks in 2023, though they would likely be less severe than those in prior years. OEM production delays arising from global microchip shortages have lengthened the delivery cycle for new vehicles, suppressing origination volumes and revenue. As of June 30, 2022, Element Fleet Management Corp.'s order backlog was $2.8 billion, which is about 164% higher than the order volume average as of June 30, 2018, 2019, and 2020. Order backlogs are stabilizing, and we expect originations to return to historical levels as microchips become more widely available (see "Auto Sales Recovery Stalls Amid Weaker Economic Outlook," Oct. 14, 2022). We expect management will likely shift to increased shareholder returns such that leverage approaches...

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