KBRA Affirms Rating for Element Fleet Management Corp.

KBRA affirms the issuer rating of A- for Element Fleet Management Corp. (TSX: EFN, “Element” or “the company”), an automotive fleet leasing and management company based in Toronto, Canada. The Outlook for the rating is Stable.

Key Credit Considerations

The rating reflects Element’s leading position in the global automotive fleet management industry, supported by its large-scale franchise, broad end-to-end service offering, and diversified blue-chip customer base. The company’s focus on mission-critical vehicles supports recurring revenue and resilient demand across economic cycles. Asset quality remains strong, with net charge-offs of only 0.01% of net investment in finance receivables in 1H26, despite an increase in reserves related primarily to a discrete client-specific exposure.

The rating is further supported by Element’s strong and improving profitability. Net revenue increased 13% year-over-year to $640 million in 1H26, with growth across servicing, financing, and syndication revenues. Adjusted operating income increased 15% to $359 million, while adjusted operating margin improved to 55.9% from 55.3%. Performance continues to benefit from vehicles under management growth, higher services penetration, funding efficiencies, and expansion of the company’s broader mobility and digital offerings.

The rating is constrained by Element’s elevated leverage, particularly relative to peers. Debt-to-tangible common equity has increased over the last few years and stood at approximately 9.4x for 1H26 annualized versus 9.3x at YE25, 7.7x at YE24, and 6.0x at YE23. Meanwhile debt-to-EBITDA improved to approximately 5.0x at 1H26 from 5.5x at YE25 reflecting earnings growth and modest debt reduction. Leverage is expected to remain relatively elevated over the near-term, but demonstrate gradual improvement supported by earnings growth, continued syndication activity, the equity residual program, and disciplined capital allocation. Funding diversification has improved materially over time, with unsecured funded debt representing approximately 56% of total funded debt at 1H26 as the company has reduced its historical reliance on asset-backed funding.

The rating also considers execution risks associated with Element’s continued investment in technology, mobility, and selective acquisitions, including the integration of Autofleet and Car IQ. While Element remains primarily focused on organic growth, KBRA expects any future acquisitions to be strategically aligned, appropriately sized, and manageable within the company’s capital and leverage framework. The rating remains sensitive to broader macroeconomic conditions, including economic activity, interest rates, trade policy, and vehicle demand across Element’s key North American and Pacific markets.

The Stable Outlook reflects KBRA’s expectation that Element will maintain strong profitability, solid asset quality, and robust liquidity while leverage gradually improves over time. The Stable Outlook also incorporates KBRA’s expectation that management will maintain disciplined capital allocation and funding practices.

Rating Sensitivities

While a rating upgrade is not expected over the near term, a meaningful and sustained improvement in leverage metrics would be viewed favorably. Such improvement, together with continued funding diversification and lower asset encumbrance, sustained positive earnings trends, and strong asset quality, could support positive rating momentum over time. The rating could come under pressure if leverage metrics do not improve in line with management's near-term expectations. The rating could also come under pressure if sustained lower utilization and/or write-downs result in material deterioration in leverage, earnings, liquidity, or asset quality metrics. Secondary and tertiary effects of trade tensions and tariffs that contribute to a recession or materially intensify economic uncertainty could also negatively affect the rating.

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