Element Fleet Management Corp.

Services revenue continued to benefit from share-of-wallet growth related to a deeper utilization of the services Element offers. We note, however, that a proportion of services revenue is vehicle usage-based, and so it may take a hit during a recession. For the first nine months of 2023, services revenue was $540.2 million, up 16% year over year. 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, its stable operating profitability, and its access to wholesale financing markets. We expect EBIT coverage of 1.7x-2.4x and debt to total capital of 70%-80%. We could lower the ratings if any of the following

...Origination volume expanded in the first nine months of 2023 while the production capacity of original equipment manufacturers (OEMs) improved, and the order backlog remains high, which we expect to convert to revenue in 2024. During the first nine months of 2023, Element Fleet Management Corp. originated $7.2 billion of new vehicles, up 50% year over year, on the improvement in OEM production capacity and strong client demand. We expect growth to moderate in 2024 if an extended impact on production resulting from the United Auto Workers (UAW) strike or any supply chain disruptions lengthens the delivery cycle for new vehicles (see "Global Auto Sales Forecasts: The Pricing Party Is Coming To An End," published Oct. 9, 2023). While the potential effects from OEM shortages are still unclear, we view positively the contractually committed future origination volumes related to Element's large order backlog. That backlog was $2.5 billion as of Sept. 30, 2023, down from $3.0 billion at year-end...

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