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Rating Action:

Moody's assigns a Aaa (sf) rating to fleet lease ABS sponsored by Enterprise Fleet Management, Inc.

Global Credit Research - 12 Apr 2011

$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.
No Related Data.
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