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29 Mar 2011
$70.06 million of asset-backed securities affected.
New York, March 29, 2011 -- Moody's Investors Service has affirmed the rating of Aa2(sf) following
the latest renewal and restructuring of the $70,063,338.86
(maximum) Variable Funding Series 2006-1 Rental Truck Asset Backed
Notes (the Notes) issued by Centre Point Funding, LLC (the Issuer),
an affiliate of Avis Budget Car Rental, LLC (ABCR, B2 positive).
ABCR is a subsidiary of Avis Budget Group, Inc.
The Notes were sold in a privately negotiated transaction without registration
under the Securities Act of 1933 (the Act) under circumstances reasonably
designed to preclude a distribution thereof in violation of the Act.
The issuance was designed to permit resale under Rule 144A.
The complete rating action is as follows:
Issuer: Centre Point Funding, LLC, Series 2006-1
Variable Funding Asset Backed Notes Series 2006-1, Aa2(sf)
ABCR is the owner and operator of Avis Car Rental Group, LLC (Avis)
and Budget Rent A Car System, Inc. (Budget). ABCR
through Budget indirectly wholly-owns the Issuer and Budget Truck
Rental, LLC (BTR). BTR is (1) the lessee of vehicles from
the Issuer under an operating lease, (2) the administrator of the
Issuer and (3) the sponsor of the ABS transaction. The rating is
based on (1) collateral in the form of a discrete pool of trucks employed
in BTR's rental truck fleet, (2) the presence of ABCR as guarantor
of BTR's obligations as lessee under an operating lease with the Issuer,
as lessor, (3) minimum liquidity in the form of cash or letters
of credit, (4) the legal structure and (5) the capabilities and
the expertise of ABCR and BTR.
The Notes are principally secured by a first priority perfected security
interest in a discrete pool of trucks owned by the Issuer. After
the transaction's restructuring or restatement prefunding period,
the collateral pool consisted (based on depreciated book value) of approximately
8% cargo vans, 12% 10-foot box trucks,
29% 16-foot box trucks, and 51% 24-foot
box trucks. The Issuer purchased the trucks with proceeds from
the Issuer's various note issuances and/or acquired the trucks by way
of capital contributions by Budget. Under an operating lease,
the Issuer (as lessor), leases its trucks to BTR (as lessee).
BTR may sublease the trucks to Avis and Budget. BTR may in the
future sublease to certain of its other affiliates. BTR,
as lessee, is responsible for lease payments covering, among
other things, interest on the Notes and depreciation on the trucks.
These obligations are guaranteed by ABCR.
For Series 2006-1, the total enhancement requirement as a
percentage of the outstanding Notes has a floor of 50.0%.
Similar to rental car transactions, the required total enhancement
includes a minimum portion which is liquid (in cash and/or letter of credit),
rather than overcollateralization in the form of trucks, that in
this transaction, is sized at 31.0% of the outstanding
balance of the Notes. The minimum liquidity is subject to a floor
equal to the lessor of (1) $10 million and (2) the outstanding
balance of the Notes. Prior to the legal final payment date,
any draw on any outstanding letter of credit will be limited such that
the remaining amount available to be drawn on such letter of credit will
be equal to at least 14.0% of the outstanding balance of
the Notes. Excess liquidity above the 14.0% minimum
liquidity requirement of the outstanding bond balance will be released
to turbo the notes (prepay principal) one business day prior to the expected
final maturity date and upon an event of default.
BTR, as lessee, is required to either purchase (at its option),
or otherwise dispose of, the securitized trucks once they reach
a certain age (72 months for gas trucks and 96 months for diesel trucks
from the time of invoice). Truck disposition proceeds, monthly
depreciation payments and other principal collections are to be applied
to pay down the Notes on each payment date until the Notes have been paid
in full. Under the transaction documentation, the indenture
trustee at the direction of note holders representing at least 50%
of the Notes' outstanding balance may carry out a limited forced
liquidation of trucks to generate enough disposition proceeds to pay-off
the note holders if the Notes have not been fully paid by the expected
final maturity date, approximately 17 months after the December
3, 2010 restructuring or restatement effective date. The
legal final maturity date is December 15, 2014.
The principal methodology used in rating the transaction is described
below. Other methodologies and factors that may have been considered
in the process of rating this issuer can also be found in the Research
& Ratings directory, in the Rating Methodologies sub-directory
on www.moodys.com. In addition, Moody's publishes
a weekly summary of structured finance credit, ratings and methodologies,
available to all registered users of its website, at www.moodys.com/SFQuickCheck.
V-SCORE AND LOSS SENSITIVITY
Moody's V Score. The V Score for this U.S. Rental
Truck ABS transaction is Medium and indicates "Average" structure
complexity and uncertainty about critical assumptions. Moody's
ratings analysis makes assumptions about key factors, such as (1)
the likelihood of default of ABCR (as the guarantor of BTR's lessee
obligations) and the truck manufacturers, (2) the composition of
the pool's truck mix over time and (3) the realizable value of the
portion of the fleet backing the ABS should fleet liquidation be necessary.
The last assumption in particular has relatively high potential variability
for the following reasons. Disposition of trucks occurs irregularly
as trucks usually have a long useful life in the fleet. As a result,
a limited number of resale value observation points exist for trucks.
And data is unavailable on truck resale values in a large scale stressed
Moody's V Scores provide a relative assessment of the quality of available
credit information and the potential variability around the various inputs
to a rating determination. The V Score ranks transactions by the
potential for significant rating changes owing to uncertainty around the
assumptions due to data quality, historical performance, the
level of disclosure, transaction complexity, the modeling
and the transaction governance that underlie the ratings. V Scores
apply to the entire transaction (rather than individual tranches).
Moody's Parameter Sensitivities. For this exercise, we analyzed
stress scenarios assessing the potential model-indicated output
impact if (a) the current B2 rating of ABCR was to immediately decline
to Caa1, Caa2 and Caa3 and (b) the assumed modeled haircuts to estimated
depreciated truck market values were increased by 10%, 15%
and 20%. Haircuts are expressed as a percentage of the estimated
depreciated market value of the truck collateral. We model potential
truck collateral liquidation value by estimating depreciated market value
and then applying haircuts and we use triangular distributions for those
haircuts (see methodology below). The stresses increase the base
case triangular distribution haircuts by the following percentage points:
10%, 15% and 20%. For example,
since the triangular distribution haircuts in the base case are (10%,
22%, 33%), and this is increased by 10 percentage
points, then the resulting stressed haircut would be a triangular
distribution of (20%, 32%, 43%).
Using such assumptions, the Aa2 initial model-indicated output
for the Series 2006-1 Notes might change as follows: (a)
with ABCR rated B2, the Aa2 initial note output would remain at
Aa2 under both the base recovery and 10% increase in market value
haircut assumptions but change to Aa3 and Baa1 with the each lower recovery
assumption; (b) with ABCR rated Caa1, the Aa2 initial note
output would remain at Aa2 under both the base recovery and 10%
increase in market value haircut assumptions but change to A1 and Baa3
with the each lower recovery assumption; (c) with ABCR rated Caa2,
the Aa2 initial note output would remain at Aa2 under both the base recovery
and 10% increase in market value haircut assumptions but change
to A2 and Ba1with the each lower recovery assumption; and (d) with
ABCR rated Caa3, the Aa2 initial note output would remain at Aa2(sf)
under both the base recovery and 10% increase in market value haircut
assumptions but change to Baa1 and Ba3with the each lower recovery assumption.
Parameter Sensitivities are not intended to measure how the rating of
the security might migrate over time, rather they are designed to
provide a quantitative calculation of how the initial rating might change
if key input parameters used in the initial rating process differed.
The analysis assumes that the deal has not aged. Parameter Sensitivities
only reflect the ratings impact of each scenario from a quantitative/model-indicated
standpoint. Qualitative factors are also taken into consideration
in the ratings process, so the actual ratings that would be assigned
in each case could vary from the information presented in the Parameter
PRINCIPAL RATING METHODOLOGY
The key factors in Moody's rating analysis include the probability of
default of ABCR (as guarantor of BTR's obligations as lessee),
the likelihood of a bankruptcy or default by the manufacturers of the
trucks backing the ABS, and the recovery rate on the rental truck
fleet in case ABCR defaults. Monte Carlo simulation modeling was
used to assess the impact on bondholders of these variables.
The default probability of ABCR is simulated based on its probability
of default rating and Moody's idealized default rates. In
addition, we stress the rating of ABCR to provide a limited degree
of de-linkage of the rated ABS from ABCR's rating.
Since the Notes are initially rated A(sf), we stressed the rating
of ABCR near default.
Under the terms of the simulation, in cases where ABCR does not
default it is assumed that bondholders are repaid in full and no liquidation
of the Issuer's rental truck fleet backing the ABS is necessary.
In cases where ABCR does default, we always assume that the portion
of the Issuer's fleet backing the ABS must be liquidated in order to repay
the bondholders. In those cases, the default probability
of the related manufacturers must also be simulated. Due to Ford's
and GM's high concentrations in the pool and non-investment
grade ratings, their defaults were simulated based on estimates
for probability of default provided by Moody's corporate analysts.
These default estimates differentiate between default with continued operation
and default with cessation of operations. The default probability
of the other manufacturers is derived from their respective ratings.
Upon liquidation, the trucks are assumed to be sold in the open
market. The truck pool is generally static although trucks may
drop out due to reaching age limitations, due to casualty or if
sold at the discretion of the administrator. Indeed, based
solely on the trucks' aging, the truck mix by manufacturer,
truck type and model year changes moderately over time, and these
projected changes to the truck mix are captured in our modeling.
The depreciated market value of a truck at time of liquidation before
any haircuts are applied is estimated using market depreciation data from
Black Book for each model of truck by manufacturer in the collateral pool.
In making this calculation we give credit to the fact that the original
purchase prices for the trucks were below MSRP by assuming a 10%
discount to MSRP for trucks in the securitized pool. We also assume
a delay in sale of nine months and therefore net out an additional nine
months of depreciation. This nine month delay in fleet liquidation
contemplates potential legal challenges to obtaining control of the fleet
and even more significant, the potential difficulties of marshaling
and selling the pool's trucks given a market with limited market
The base liquidation value of sold trucks is determined by applying a
base haircut to the estimated depreciated market value. The base
haircut is simulated using a triangular distribution (i.e.,
minimum, mode, maximum) with values of (10%,
22%, 33%). This base haircut is increased by
10 percentage points for ABS ratings higher than A(sf) to compensate for
uncertainty in market value risk associated with a large scale stressed
liquidation of trucks.
We also simulate the manufacturer's status: non-bankrupt
or bankrupt. An additional 10% haircut is applied to the
base liquidation value of the trucks from any manufacturer whose simulated
status is bankrupt. We believe such moderate haircut is appropriate
for trucks from bankrupt manufacturers given our view that the manufacturer's
bankruptcy status has only a moderate linkage to truck resale value.
In addition, unlike rental car ABS, none of the trucks in
the pool benefit from program agreements with the manufacturers (that
is, agreements where the manufacturer guarantees either the minimum
depreciation or the resale value of the trucks upon disposition) and as
such no modeling of such feature is necessary.
The market value risk in this transaction renders rating levels higher
than Aa2(sf) inappropriate. In the event of an ABCR default,
Moody's believes that the likelihood of a Chapter 7 bankruptcy is relatively
low. If ABCR filed Chapter 11, ABCR might choose to exit
the rental truck business since it is not key to ABCR's overall business
strategy (unlike its rental car business). In our opinion ABCR
has a strong incentive to make sure any disposition of trucks is orderly
since ABCR's incentives are well-aligned with investors,
as securitization is the principal form of debt financing for a material
portion of BTR's rental truck fleet and a substantial portion of ABCR's
rental car fleet. ABCR or a subsidiary retains a substantial equity
interest in its rental car and rental truck ABS programs. Since
an exit or a downsizing of the rental truck business by ABCR could expose
the BTR sponsored rental truck ABS transactions to market value risk which
is more difficult to predict for trucks than for cars, we make assumptions
we believe to be conservative about appropriate recovery value haircuts,
but which we believe would not be appropriate for a rating higher than
The special reports, "Updated Report on V Scores and Parameter Sensitivities
for Structured Finance Securities" and "V Scores and Parameter Sensitivities
in the U.S. Vehicle ABS Sector" are available on moodys.com.
Additional research, including reports for prior transactions,
is available at www.moodys.com.
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's affirms rating of restructured Budget Truck rental truck asset-backed notes
250 Greenwich Street
New York, NY 10007
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