12/10/2010

Enterprise Developing Inaugural Offering

Enterprise Rent-A-Car is planning its first securitization.

The early-2011 arrangement, backed by so-called fleet leases, would actually encompass two components: a term deal and a commercial-paper conduit facility. Its overall size is likely to be comparable to other recent offerings in the sector, suggesting that Enterprise will try to raise $500 million to $1 billion.

The effort is timed to take advantage of increasing investor demand that has emerged for bonds involving less-mainstream assets, given falling returns on the most familiar securities. With the three-year senior pieces of credit-card deals trading at a mere 33 bp over Libor and comparable student-loan paper going for 45 bp, for example, more investors are looking to higher-yielding collateral like fleet leases - where they're getting spreads of 75-100 bp.

Given the heightened demand, Enterprise can probably expect its bonds to price at the low end of that range.

Enterprise's deal would be backed by lease payments that corporate customers make on fleets of vehicles. That sets the St. Louis company apart from most of its peers, which have been securitizing cashflows - often still coined as leases - attached to cars rented to travelers. In fact, the most recent transaction underpinned by corporate leases was a $500 million issue by Automotive Resources International on Feb. 4.

The mix is expected to include more corporate-lease deals going forward, however, as more issuers are drawn into the market.

One potential candidate to seek funding through asset-backed bonds: LeasePlan USA. It ranked as the sixth-largest player in the sector with 132,000 vehicles under lease as of Jan. 1, according to Automotive Fleet magazine. Enterprise is fifth, with 188,000 leases. The leaders are GE Capital (558,300), PHH Vehicle Management (330,000), Wheels (212,500) and Automotive Resources (207,000). Among them, only Automotive Resources, PHH and Wheels have securitized their cashflows in the past.

This isn't the first time that Enterprise has been mentioned as a prospective issuer. In 2007, the company was rumored to be planning a deal intended in part to help fund its purchase of Vanguard Car Rental.

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