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Global Credit Research - 02 Nov 2010
New York, November 02, 2010 -- Moody's Investors Service has assigned a definitive rating of Baa2 (sf)
to the $155,000,000 Series 2010-1 Box Truck
Asset Backed Notes (the Notes, or, Series 2010-1) issued
by 2010 U-Haul S Fleet, LLC, an indirect subsidiary
of U-Haul International, Inc. (UHI or U-Haul).
U-Haul is a wholly owned subsidiary of AMERCO, a Nevada corporation.
The Co-Issuers of the Notes along with USF are 2010 DC-1,
LLC, 2010 TM-1, LLC, and 2010 TT-1,
LLC (each a Collateral SPV). Each Collateral SPV owns a particular
type of truck available for rental in the U-Haul system.
U-Haul will the fleet manager and administrator for this transaction.
The complete rating action is as follows:
Issuer: 2010 U-Haul S Fleet, LLC
Co-Issuers: 2010 DC-1, LLC, 2010 TM-1,
LLC, and 2010 TT-1, LLC
Series 2010-1, Assigned Baa2 (sf)
The definitive rating is based on (1) cash flows generated by a static
pool of new and to-be-acquired box trucks owned by the Collateral
SPVs placed into service in the U-Haul System, (2) liquidation/residual
values of the box truck collateral, which consist of the 'TM' model
(10-foot box truck), the 'DC' model (14-foot box truck),
and the 'TT' model (20-foot box truck), (3) funds in the
Box Truck Purchase Account (pre-funding account) initially equal
to approximately 60% of the amount of Notes issued, (4) liquid
credit enhancement in the form of cash in reserve account sufficient at
closing and thereafter to cover 10 months of interest on the Notes,
(5) overcollateralization in the form of an advance rate against the assumed
asset value of each eligible box truck, (6) size and competitive
position of the U-Haul system (System) of do-it-yourself
moving and storage rental locations, (8) the expertise of UHI as
Fleet Manager in managing the box trucks for the benefit of the Issuer
and as the overall operator of the System, (9) performance guaranty
provided by AMERCO for timely payments and performance obligations of
U-Haul as both fleet manager and administrator, (10) liability
insurance coverage provided for the box trucks, (11) legal and structural
aspects of the transaction.
Credit support to the notes are provided by over-collateralization
provided by advance rates that vary by each truck type, an interest
reserve account and pre-funding interest reserve account.
The outstanding balance of the notes must at all times be less than or
equal to the sum of (i) the discounted aggregate assumed asset value of
the box trucks, (ii) disposition receivables, and (iii) cash
in the Box Truck Purchase Account. The discounted aggregate assumed
asset value is equal to the sum, for each box truck, of the
product of the applicable assumed asset value times the applicable advance
rate. The assumed asset value for each truck type is based on a
schedule intended to approximate normal economic depreciation (adjusted
for seasonality). Further, upon breach of certain Debt Service
Coverage Ratio (DCSR) triggers, a portion of the excess cash flow
will be applied to pay down the note principal. If the Notes are
not fully paid by the 84th month after closing (expected final maturity),
all net collections (revenues net of expenses) will be applied to pay
down the notes. The legal final maturity is 13 years after closing.
There is an event of default if notes are not paid down 24 months before
legal final maturity.
The Notes are secured by a security interest in certain assets of the
Issuer and co-Issuers such as the box trucks, payments due
from rental of each box truck owned by the co-Issuers, disposition
proceeds and warranty payments. Proceeds from note issuance will
be used to purchase additional eligible box trucks, fund the interest
reserve account, Box truck purchase account and pre-funding
period interest deficiency account. Pre-funding period ends
on the earlier of the Box Truck purchase account holding less than $10,000
or November 2011 payment date.
The issuance has been designed to permit resale under Rule 144A.
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 AMERCO (as the guarantor of U-Haul obligations),
(2) U-Haul as the fleet manager and administrator, 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- trucks usually have a
longer use (i.e., older age) prior to their disposition
than do non-commercial vehicles. Fewer re-sale value
observation points exist for trucks than there are for non-commercial
vehicles. And, like non-commercial vehicles,
data is unavailable on truck values in a large scale stressed liquidation.
To address this variability, we make assumptions we believe to be
conservative about appropriate recovery value haircuts. 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 current credit estimate of U-Haul/AMERCO was
to immediately decline by 1,2 or 3 notches and (b) the assumed modeled
haircuts to estimated depreciated truck market values were increased by
5%, 10% and 15%. Haircuts are expressed
as a percentage of the estimated depreciated market value of the truck
collateral. Please see methodology below for assumption on truck
collateral liquidation value. The stresses increase the base case
triangular distribution haircuts by the following percentage points:
5%, 10% and 15%. Using such assumptions,
the Baa2 initial model-indicated output for the Series 2010-1
Notes will change as follows: (a) with initial credit estimate (Base
credit estimate) of U-Haul, the Baa2 initial note output
would remain at Baa2 under the base recovery but change to Baa3,
Ba1 and Ba2 with the each lower recovery assumption; (b) with Base
credit estimate for U-Haul notched down by 1 level, the Baa2
initial note output would be Baa3 under the base recovery and change to
Ba1, Ba2 and B1 with the each lower recovery assumption; (c)
with Base credit estimate for U-Haul notched down by 2 levels,
the Baa2 initial note output would be Ba1 under the base recovery and
change to Ba2, B1 and B2 with the each lower recovery assumption;
and (d) with Base credit estimate for U-Haul notched down by 3
levels, the Baa2 initial note output would be Ba2 under the base
recovery and change to B1, B2 and B3 with 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 Sensitivity analysis.
PRINCIPAL RATING METHODOLOGY
In this transaction, the box truck collateral generates revenues
and incurs expenses, resulting in a net cash flow available to service
debt. Revenues and expenses, hence net cash flow, is
subject to fluctuation based on actual rental activity, expense
levels, etc. This contrasts with typical rental car transactions,
in which the rental car collateral generates only a fixed lease payment
from the sponsor, which bears all risk relating to the revenues
and expenses of the vehicles. Therefore in a fundamental sense
the primary drivers of collateral performance are truck revenues and expenses.
However, because there is a fixed payment schedule, the notes
do not amortize faster if revenues increase; instead excess cash
flow is returned to the sponsor. As such, we view the creditworthiness
of UHI/Amerco and the U-Haul System, along with liquidation
value of the collateral, are the ultimate determinants of credit
performance on the Notes. This is more similar to rental car securitizations
than might otherwise be expected given the structural differences.
Taking this into consideration, Moody's analyzed losses if
box trucks are liquidated upon certain events of U-Haul or AMERCO
default. Monte Carlo simulation of box truck dispositions was the
primary quantitative technique used to establish the appropriate level
of credit enhancement. Disposition proceeds for each type of box
truck collateral (TM, DC and TT) was modeled through simulations
of disposition based on a simulated haircut of adjusted NADA values for
applicable truck (NADA truck values adjusted by the value of installed
box on that truck). The haircuts were simulated via distribution
derived through qualitative judgment. NADA truck values from years
2006 and 2010 were studied to understand the effect the state of an economy
and supply/demand dynamics of that truck type on used truck values,
which would guide liquidation proceeds. Since UHI/AMERO is not
rated by Moody's, an internal assessment was made on the credit
strength of UHI/AMERCO. U-Haul default was simulated guided
by this internal credit estimate. In particular, Moody's
stressed the credit estimate further. This stressed level and Moody's
idealized default rates were used to determine the probability of U-Haul
default. Moody's analyzed both the probability of U-Haul
default and the magnitude of potential losses, if a default and
ensuing liquidation were to occur. Due to the strength of the System,
a U-Haul default was modeled probabilistically as either a Chapter
11 reorganization or a Chapter 7 liquidation; in a Chapter 11 default
U-Haul could either reject or accept its role as Fleet Manager.
Occurrence of a Chapter 7 default or rejection in Chapter 11 caused a
liquidation of the collateral. Upon liquidation, box trucks
were assumed to be sold in the open market 9 months after U-Haul
Chapter 7 default or rejection in Chapter 11. Nine month delay
in fleet liquidation contemplated potential legal challenges in obtaining
control of the fleet and the potential difficulties in marshalling and
selling the box trucks in an open market. Several thousand iterations
were run, sufficient to achieve convergence of the decision variables.
After each iteration, the spread paid to investors over the pricing
index was calculated. The average spread paid was then calculated
over all iterations and compared to the promised spread. Due to
the stressful modeling assumptions, the average simulated spread
is generally lower than the promised investor spread. This reduction
is compared to the reduction appropriate to the requested rating.
The credit enhancement (advance rate) was then adjusted to match the reduction
in investor spread, over the pricing index, which corresponds
to the desired rating. Moody's additionally considered other rating
indicators, such as expected loss and default frequency.
Moody's Investors Service did not receive or take into account a
third party due diligence report on the underlying assets or financial
instruments in this transaction.
A pre-sale report for this transaction is available on moodys.com.
The special report, "Updated Report on V Scores and Parameter Sensitivities
for Structured Finance Securities" is available on moodys.com.
Additional research is available at www.moodys.com.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
confidential and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
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
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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.
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns definitive rating to U-Haul-sponsored box truck asset-backed notes
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