$750 million of asset-backed securities rated.
New York, April 12, 2011 -- Moody's Investors Service has assigned a Aaa (sf) rating to the Floating
Rate Variable Funding Asset-Backed Notes, Series 2011-1
(the Notes) issued by Enterprise Fleet Financing, LLC, (the
Issuer). The Issuer is a bankruptcy-remote special purpose
entity wholly owned by Enterprise Fleet Management, Inc.
(EFM), currently a wholly-owned subsidiary of Enterprise
Holdings, Inc. (Enterprise, Baa1), which is a
major rental car company. EFM, which will be the servicer
for this transaction, provides fleet leasing and management services
primarily to small and medium-sized businesses throughout the United
States.
The complete rating action is as follows:
Issuer: Enterprise Fleet Financing, LLC
$750,000,000 (maximum commitment), Series 2011-1
floating rate variable funding asset-backed notes, final
payment date October 3, 2017, rated Aaa (sf)
The rating assigned only addresses the timely payment of the Senior Monthly
Interest and Fees as defined in the Indenture and the ultimately payment
of principal on the Notes.The rating is based on an assessment
of the quality of the collateral, available credit enhancement and
the structural features of the transaction. The principal methodology
used in rating the transaction is summarized below. Other methodologies
and factors that may have been considered in the process of rating this
issue can also be found in the Rating Methodologies sub-directory
on Moody's website.
The Notes are ultimately backed by a special unit of beneficial interest
(SUBI) in a pool of leases and the related vehicles. The leases
were originated in the name of Enterprise FM Trust (Titling Trust) by
EFM. Currently more than 90% of the leases are open-end
leases. The transaction structure allows for up to 10% of
the pool to be closed-end leases. EFM's portfolio
is very granular compared with the portfolios of other fleet lease ABS
sponsors. The top lessee currently accounts for less than 1%
of the pool and the top ten lessees currently account for less than 4%
of the pool. The structure includes various concentration limits
to mitigate the pool composition migration risk during the revolving period,
including a top lessee limit of 2.5% of the pool and the
top ten lessees' limit of 10% of the pool.
The pool balance is calculated by discounting each lease at a rate which
is the greater of the cost of the liabilities on a hedged basis plus servicing
fees or the actual lease rate. There is sizable amount of excess
spread estimated to be approximately 4.5% p.a.
at closing in the transaction as the leases have a relatively high yield
compared with other fleet lease portfolios. Excess spread constitutes
an important part of the total available credit enhancement.
A performance guarantee will be provided by EFM's parent,
Enterprise, at closing. The transaction allows The Crawford
Group, the parent of Enterprise and not rated by Moody's,
to replace Enterprise as the guarantor in the future under certain conditions.
The performance guarantee may fall off if EFM obtains an investment grade
rating from Moody's in the future. The rating on the Notes
incorporates these possibilities. We conducted an assessment of
the Crawford Group and the servicer quality of EFM and determined that
servicer disruption risk is consistent with investment grade risk.
Key credit metrics on the lease pool include the weighted average rating
of the lessees, the diversity score (a measure of the diversity
of the pool of lessees) and the break-even recovery rate on liquidated
collateral in the event of a lessee default. Only a few of the
lessees are rated by Moody's. For the few lessees with a
Moody's rating, the actual rating is used in our model.
For the non-rated lessees, we assume a probability of default
consistent with a B2 rating. Under this assumption, the overall
weighted default rate of the entire pool is consistent with a B2.
The diversity score for the pool is 123, meaning the pool of lessees
will have a similar default profile as a pool of 123 independent and equal-sized
lessees with the same rating as the weighted average rating of the pool.
The diversity score is significantly higher, i.e.
better than other fleet lease ABS transactions. The estimated break-even
recovery rate for the Notes is approximately 60% to 65%.
V-SCORE AND PARAMETER SENSITIVITY
Moody's V Score: The V Score for this transaction is Medium,
the same as that for the fleet leasing sector. The V Score indicates
"Medium" uncertainty about critical assumptions.
The Medium or average score for this transaction is driven by the Medium
score for historical sector performance, the Medium score for sponsor/originator
historical performance, the Medium score for complexity and market
value sensitivity, and the Medium score for the governance .
The score for transaction complexity is Medium, the same as PHH-sponsored
deals but higher than those sponsored by ARI or Wheels due to the revolving
nature of the transaction. The score for market value sensitivity
is Medium, higher than other fleet lease transaction due to the
inclusion of up to 10% of closed-end leases and the higher
credit risk of the lessees which are small to medium-sized businesses.
The Medium score for governance is largely driven by the Medium score
assigned to transaction parties, particularly the servicer,
as EFM is the first time sponsor of such transactions. The Low/Medium
score assigned to the backup servicing arrangement is the same as that
for PHH-sponsored transactions by higher that for ARI-sponsored
transaction due to the transaction structure which allows The Crawford
Group to be the performance guarantor in the future. The Low/Medium
score assigned to alignment of interest is higher than that for other
fleet lease transactions due to the relative lack of diversity in its
funding sources at this stage as this is EFM's first fleet lease
ABS program. All the other subcomponent scores for this transaction
are the same as for the fleet leasing sector.
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 ratings
impact if (a) the assumed weighted average rating of the lessees were
to immediately decline from B2 to B3, Caa1 and Caa2 and (b) the
assumed recovery rates were to decrease from 75% to 70%,
65% and 60%. The following descriptions provide a
summary of the results.
Using such assumptions, the Aaa initial rating for the Notes might
change as follows based purely on the model results: (a) If the
assumed weighted average rating of lessees is B2, there will be
no change in rating as recovery rate decreases to 65%, but
the rating would decrease by one notch to Aa1 as recovery rate decreases
to 60%; (b) If the weighted average rating of lessees is B3,
the maximum change will be two notches to Aa2 as recovery rate decreases
to 60%; (c) If the weighted average rating of lessees is Caa1,
the maximum change will be six notches to A3 as recovery rate decreases
to 60%; and (d) If the weighted average rating of lessees
is Caa2, the maximum change will be nine notches to Baa3 as recovery
decreases to 60%.
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
Sensitivity analysis.
PRINCIPAL METHODOLOGY
The majority of the underlying collateral consists of a pool of open-end
leases in which the lessees are responsible for any residual value losses.
Therefore, the potential credit loss is driven primarily by the
default likelihood of the lessees, the recovery rate when a lessee
defaults, and the diversity of the pool of lessees. The credit
risk of the corporate lessees is the primary credit concern in fleet lease
ABS. As long as the lessees are able and willing to maintain their
lease payments, the transaction will not be subject to residual
value losses on defaulted leases. Aside from the quality of the
lessees themselves, the strength of the pool will also depend in
part on its diversity. Residual value risk generally comes into
play only if a lessee defaults on the lease because the lessee is generally
responsible for shortfalls in residual value. This is in contrast
to consumer auto lease ABS backed by closed-end leases, where
investors are usually exposed to the risk of residual value loss at lease
expiration.
We use two modeling approaches to quantify these risks in this transaction.
The first applies the Binomial Expansion Technique (BET), in which
we construct a hypothetical lease pool with characteristics similar to
the one in the subject transaction. These characteristics are 1)
a diversity score that indicates the hypothetical number of independent
lessees in the pool by accounting for the pool's lessee and industry concentrations,
2) a default distribution derived from the average ratings of the lessees
in the pool and the diversity score, and 3) a recovery rate on defaulted
leases.
Recoveries can come from the disposition of a defaulted lessee's fleet
or from amounts received from a defaulted lessee in a case in which the
lease is affirmed in bankruptcy court. We use the pool's diversity
score and average implied default rate to generate a pool binomial default
distribution. We then calculate the weighted average present value
of losses on the proposed securities under the various assumed lease recovery
rates using a cashflow model depicting the rated bonds' payment priorities.
The weights used are the probabilities associated with each lessee default
scenario. The probability weighted average loss of each security,
i.e., its expected loss, at a given recovery
rate on the collateral, is then compared with Moody's Idealized
Cumulative Expected Loss Rates table to determine its rating. A
security will be able to achieve its target rating if the breakeven recovery
rate on the collateral, which is the minimum recovery rate needed
to arrive at that rating, is below our benchmark recovery rate established
by the committee for that particular rating level.
The second modeling approach is the Hybrid CDOROM approach, which
does not rely on a proxy pool. This method has two steps.
In step one, we use Moody's CDOROM simulation model to generate
a default distribution based on the probability of default of each lessee
(represented by its Moody's rating or an estimate thereof) and the relative
sizes of the lessee concentrations in the pool, their industry classifications,
and the correlation among the lessees and industries. In the second
step, we apply the probability of default distribution generated
by the model to the cashflow model used in the BET method, with
all other assumptions and inputs remaining the same.
We also gave credit to excess spread in our analysis as our cashflow model
takes into account the amount of excess spread available as credit enhancement
to the notes.
Moody's Investors Service takes into account a third party AUP report
on the underlying assets or financial instruments related to the rating
of this transaction.
REGULATORY DISCLOSURES
Information source(s) used to prepare the credit rating is/are the following:
parties involved in the ratings, public information and confidential
and proprietary Moody's Investors Service's information.
Moody's Investors Service considers the quality of information available
on the transaction satisfactory for the purposes of maintaining a credit
rating.
For more information please see www.moodys.com.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
William Black
MD - Structured Finance
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Xiaochao Wang
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns a Aaa (sf) rating to fleet lease ABS sponsored by Enterprise Fleet Management, Inc.
