October 16, 2012 / 2:35 PM / 5 years ago

TEXT-Fitch affirms Wheels Inc ratings

Oct 16 - Fitch affirms Wheels, Inc.'s (Wheels) Long-term Issuer Default
Rating (IDR) at 'A' and Short-term IDR and commercial paper ratings at 'F1'. The
Rating Outlook is Stable.

The rating affirmations and Stable Outlook reflect Wheels' established market 
position within the fleet leasing business, supported by its growing high 
quality customer base and increased penetration. Wheels' proven business 
strategy has helped generate consistent core operating cash flow through various
economic and capital market cycles, with minimal credit losses.

As customers have reduced or rationalized their fleets during challenging 
economic conditions, Wheels has been able to maintain its profitability in 2011 
and for the nine-months ended May 31, 2012,  as well as invest in new product 
development, expand its customer base and increase existing customer penetration
through ancillary product offerings and services. Barring substantial client 
exits and/or defaults, Fitch expects profitability will remain strong in the 
near term.

Historical lessor credit quality and lease performance have been excellent, and 
reflect the company's conservative credit extension policy and lease structure. 
As a result, the company has experienced no significant credit loss in its 
entire operating history, which Fitch views positively. Wheels' corporate client
base is diverse and of good credit quality, without significant obligor or 
industry concentrations. The overall portfolio is almost entirely comprised of 
open-end leases, which protects Wheels from residual value risk upon vehicle 
disposition. Due to its conservative depreciation policies, the company has 
historically remarketed its vehicles above book value on average. 

Wheels is entirely funded by secured debt, which has helped the company 
match-fund against its assets and lower overall cost of funding. However, Fitch 
believes flexibility is limited by the lack of unsecured debt in its overall 
capital structure as well as the lack of access to public unsecured debt and 
equity markets. While the company has demonstrated continued access to funding 
through recent disruptions in the global capital markets, Fitch believes Wheels'
ratings are constrained by its reliance on secured funding.

The company's overall liquidity profile is supported by consistent operating 
cash flow generation however, most of this cash flow is reinvested to acquire 
new fleet assets, invest in new products, as well as to manage leverage. Fitch 
believes that Wheels could minimize new vehicle acquisitions and redirect cash 
flows to debt reduction, should access to market liquidity be restricted in the 

Fitch believes Wheels' capitalization is appropriate for its current rating 
category given the high quality of its customer's credit profile, low historical
loss experience and the company's minimal exposure to residual risk. The 
company's equity base is of high quality, comprised of paid-in-capital and 
retained earnings with no goodwill or other intangibles. Balance sheet leverage,
as measured by total debt to equity is consistent with other 'A' rated peers. 
While leverage has historically been as high as 8.5x, management has indicated 
that it intends to manage total debt to equity between 7x and 7.5x going 


Fitch believes that positive rating momentum is limited given Wheels' current 
ratings, secured funding profile and sensitivity to general economic conditions.
Conversely, negative rating actions could result from significant client 
departures and/or defaults, which would negatively impact overall lease revenue 
that would ultimately hurt cash flow generation. In addition, loss of 
competitive position, and/or substantial increase in leverage from current 
levels could also put negative pressure on the rating.

Fitch has affirmed the following ratings with a Stable Outlook: 

Wheels, Inc.
--Long-term IDR at 'A';
--Short-term IDR at 'F1';
--Commercial paper at 'F1'.

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