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Rating Action:

Moody's assigns definitive ratings to Avis Budget Rental Car Funding (AESOP) LLC, Series 2022-4 rental car ABS

21 Jul 2022

New York, July 21, 2022 -- Moody's Investors Service ("Moody's") has assigned definitive ratings to the notes issued by Avis Budget Rental Car Funding (AESOP) LLC (the issuer). The series 2022-4 notes have an expected final maturity of approximately 67 months. The issuer is an indirect subsidiary of the sponsor, Avis Budget Car Rental, LLC (ABCR, B1 stable). ABCR, a subsidiary of Avis Budget Group, Inc., is the owner and operator of Avis Rent A Car System, LLC (Avis), Budget Rent A Car System, Inc. (Budget), Zipcar, Inc, Payless Car Rental, Inc. (Payless) and Budget Truck.

Moody's also announced today that the issuance of the Series 2022-4, in and of itself and at this time, will not result in a reduction, withdrawal, or placement under review for possible downgrade of any of the ratings currently assigned to the outstanding series of notes issued by the issuer.

The complete rating actions are as follows:

Issuer: Avis Budget Rental Car Funding (AESOP) LLC, Series 2022-4

Series 2022-4 Rental Car Asset Backed Notes, Class A, Definitive Rating Assigned Aaa (sf)

Series 2022-4 Rental Car Asset Backed Notes, Class B, Definitive Rating Assigned A2 (sf)

Series 2022-4 Rental Car Asset Backed Notes, Class C, Definitive Rating Assigned Baa3 (sf)

Series 2022-4 Rental Car Asset Backed Notes, Class D, Definitive Rating Assigned Ba2 (sf)

RATINGS RATIONALE

The definitive ratings on the series 2022-4 notes are based on (1) the credit quality of the collateral in the form of rental fleet vehicles, which ABCR uses in its rental car business, (2) the credit quality of ABCR as the primary lessee and as guarantor under the operating lease, (3) the proven track-record and expertise of ABCR as sponsor and administrator, (4) consideration of the vastly improved rental car market conditions, (5) the available dynamic credit enhancement, which consists of subordination and over-collateralization, (6) minimum liquidity in the form of cash and/or a letter of credit, and (7) the transaction's legal structure.

The total credit enhancement requirement for the series 2022-4 notes is dynamic and determined as the sum of (1) 5.75% for vehicles subject to a guaranteed depreciation or repurchase program from eligible manufacturers (program vehicles) rated at least Baa3 by Moody's, (2) 9.25% for all other program vehicles, (3) 13.85% minimum for non-program (risk) vehicles and (4) 35.75% for medium and heavy duty trucks, in each case, as a percentage of the outstanding note balance. The actual required amount of credit enhancement will fluctuate based on the mix of vehicles in the securitized fleet. As in prior issuances, the transaction documents stipulate that the required total enhancement shall include a minimum portion which is liquid (in cash and/or a letter of credit), sized as a percentage of the outstanding note balance, rather than fleet vehicles. The class A, B, C notes will also benefit from subordination of 28.5%, 18.5% and 12.0% of the outstanding balance of the series 2022-4 notes, respectively.

Below are the assumptions Moody's applied in its analysis of this transaction:

Risk of sponsor default: Moody's assumed a 60% decrease in the probability of default (from Moody's idealized default probability tables) implied by the B1 rating of the sponsor. This decrease reflects Moody's view that, in the event of a bankruptcy, ABCR would be more likely to reorganize under a Chapter 11 bankruptcy filing, as it would likely realize more value as an ongoing business concern than it would if it were to liquidate its assets under a Chapter 7 filing. Furthermore, given the sponsor's competitive position within the industry and the size of its securitized fleet relative to its overall fleet, the sponsor is likely to affirm its lease payment obligations in order to retain the use of the fleet and stay in business. Moody's arrived at the 60% decrease assuming an 80% probability that Avis would reorganize under a Chapter 11 bankruptcy and a 75% probability (90% assumed previously) that Avis would affirm its lease payment obligations in the event of a Chapter 11 bankruptcy.

Disposal value of the fleet: Moody's assumed the following haircuts to the net book value (NBV) of the vehicle fleet:

Non-Program Haircut upon Sponsor Default (Car): Mean: 19%

Non-Program Haircut upon Sponsor Default (Car): Standard Deviation: 6%

Non-Program Haircut upon Sponsor Default (Truck): Mean: 35%

Non-Program Haircut upon Sponsor Default (Truck): Standard Deviation: 8%

Non-Program Haircut upon Sponsor Default (Tesla electric vehicles EV): Mean: 29%

Non-Program Haircut upon Sponsor Default (Tesla EV): Standard Deviation: 10%

Fixed Program Haircut upon Sponsor Default: 10%

Additional Fixed Non-Program Haircut upon Manufacturer Default (Car): 20%

Additional Fixed Non-Program Haircut upon Manufacturer Default (Truck): 10%

Additional Fixed Non-Program Haircut upon Manufacturer Default (Tesla EV): 50%

Fleet composition -- Moody's assumed the following fleet composition (based on NBV of vehicle fleet):

Non-program Vehicles (Car and Tesla EV): 90.25%

Non-program Vehicles (Trucks): 5%

Program Vehicles (Car and Tesla): 4.75%

Non-program Manufacturer Concentration (percentage, number of manufacturers, assumed rating):

Aa/A Profile: 25%, 2, A3

Baa Profile: 47%, 2, Baa3

Ba/B Profile: 25%, 1, Ba3; 3%, 1, Ba1

Program Manufacturer Concentration (percentage, number of manufacturers, assumed rating):

Aa/A Profile: 0%, 0, A3

Baa Profile: 50%, 1, Baa3

Ba/B Profile: 50%, 1, Ba3

Manufacturer Receivables: 0%; receivables distributed in the same proportion as the program fleet (Program Manufacturer Concentration and Manufacturer Receivables together should add up to 100%)

Correlation: Moody's applied the following correlation assumptions:

Correlation among the sponsor and the vehicle manufacturers: 10%

Correlation among all vehicle manufacturers: 25%

Default risk horizon -- Moody's assumed the following default risk horizon:

Sponsor: 5 years

Manufacturers: 1 year

Moody's uses a fixed set of time horizon assumptions, regardless of the remaining term of the transaction, when considering sponsor and manufacturer default probabilities and the expected loss of the related liabilities, which simplifies Moody's modeling approach using a standard set of benchmark horizons.

Detailed application of the assumptions are provided in the methodology.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was "Rental Vehicle Securitizations Methodology" published in October 2021 and available at https://ratings.moodys.com/api/rmc-documents/75000. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of the ratings:

Up

Moody's could upgrade the ratings of the series 2022-4 notes, as applicable if, among other things, (1) the credit quality of the lessee improves, (2) the likelihood of the transaction's sponsor defaulting on its lease payments were to decrease, and (3) assumptions of the credit quality of the pool of vehicles collateralizing the transaction were to strengthen, as reflected by a stronger mix of program and non-program vehicles and stronger credit quality of vehicle manufacturers.

Down

Moody's could downgrade the ratings of the series 2022-4 notes if, among other things, (1) the credit quality of the lessee weakens, (2) the likelihood of the transaction's sponsor defaulting on its lease payments were to increase, (3) the likelihood of the sponsor accepting its lease payment obligation in its entirety in the event of a Chapter 11 were to decrease and (4) assumptions of the credit quality of the pool of vehicles collateralizing the transaction were to weaken, as reflected by a weaker mix of program and non-program vehicles and weaker credit quality of vehicle manufacturers.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

In rating this transaction, Moody's CDOROM™ is used to model the expected loss for each tranche. Moody's CDOROM™ is a Monte Carlo simulation tool which takes each underlying asset default probability as input. Each underlying asset default behavior is then modeled individually with a standard multi-factor model incorporating both intra- and inter-industry correlation. The correlation structure is based on a Gaussian copula. Each Monte Carlo scenario simulates defaults and if applicable, recovery rates, to derive losses on a portfolio. For a synthetic transaction, the model then allocates losses to the tranches in reverse order of priority to derive the loss on the tranches. By repeating this process and averaging over the number of simulations, Moody's can derive the expected loss on the tranches. For a cash transaction, the portfolio loss, or default, distribution produced by Moody's CDOROM™ may be input into a separate cash flow model in accordance with its priority of payment to determine each tranche's expected loss.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Joao Daher, CFA
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Karen Ramallo
Associate Managing Director
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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