Approximately $650 million securities affected
New York, August 30, 2011 -- Moody's Investors Service has assigned definitive ratings of Aaa(sf) to
the $565,500,000 Series 2011-5 Class A fixed
rate Rental Car Asset Backed Notes (Class A Notes) and Baa2(sf) to the
$84,500,000 Series 2011-5 Class B fixed rate
Rental Car Asset Backed Notes (Class B Notes and, together with
the Class A Notes, the Series 2011-5 Notes). The Series
2011-5 Notes, which have an approximately 66 month expected
final maturity, were issued by Avis Budget Rental Car Funding (AESOP)
LLC (the Issuer). The Issuer is an indirect subsidiary of the sponsor,
Avis Budget Car Rental, LLC (ABCR). ABCR is a subsidiary
of Avis Budget Group, Inc. (B1 corporate family rating and
probability of default rating/stable outlook). ABCR is the owner
and operator of Avis Rent A Car System, LLC (Avis) and Budget Rent
A Car System, Inc. (Budget).
Issuer: Avis Budget Rental Car Funding (AESOP) LLC, Series
2011-5
$565,500,000 Series 2011-5 3.27%
Class A Notes, Assigned Aaa(sf)
$ 84,500,000 Series 2011-5 4.72%
Class B Notes, Assigned Baa2(sf)
RATINGS RATIONALE
As further described below, the ratings for the Series 2011-5
Notes are based on (1) collateral in the form of rental fleet vehicles,
(2) the presence of ABCR as lessee under operating leases, (3) minimum
liquidity in the form of cash or letters of credit, (4) the legal
structure, (5) the capabilities and the expertise of ABCR,
and (6) in the case of the Class A Notes, subordination provided
by the Class B Notes. The Series 2011-5 Notes are to be
issued under a master indenture and will generally rank pari passu with
the Issuer's other outstanding series of notes.
The total enhancement requirement for the Series 2011-5 Notes is
dynamic and is determined as the sum of (1) 25.00% for vehicles
subject to a guaranteed depreciation or repurchase program from eligible
manufacturers (program vehicles) rated at least Baa2 (unlimited) or Baa3
(subject to a limit of 10% of the total securitized fleet by net
book value); (2) 32.50% for all other program vehicles;
and (3) 35.25% for non-program (risk) vehicles;
in each case, as a percentage of the outstanding note balance.
Consequently, the actual required amount of credit enhancement fluctuates
based on the mix of vehicles in the securitized fleet. As in prior
transactions the required total enhancement must include a minimum portion
which is liquid (in cash and/or letter of credit), sized as a percentage
of the outstanding note balance, rather than fleet vehicles.
The Class A Notes also benefit from subordination provided by the Class
B Notes representing 13% of the outstanding Series 2011-5
Note balance. This subordination percentage behind the Class A
Notes will increase once principal amortization begins on the Class A
Notes.
The Series 2011-5 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 principal methodology used in rating the notes is described below.
Other methodologies that may have been used can be found at www.moodys.com
KEY FACTORS IN RATING ANALYSIS
The key factors in Moody's rating analysis include (1) the probability
of default by ABCR, as lessee, (2) the likelihood of a bankruptcy
or default by the auto manufacturers providing vehicles to the rental
car fleet securing the Issuer's outstanding notes, (3) the
composition of the pool's vehicle mix over time and (4) the realizable
value of the portion of the fleet backing the ABS should fleet liquidation
be necessary.
Monte Carlo simulation modeling was used to assess the impact on bondholders
of these variables. We equate the probability of default of ABCR
as lessee to a probability of default rating (PDR) of B1, based
on its parent's B1 PDR. Our forward-looking assumptions
about fleet mix relate to the mix by vehicle manufacturer and the mix
between program cars and non-program cars. These assumptions
are driven by a combination of historical fleet data, current expectations
of the sponsor and our assessment of potential mix volatility or stability.
Data is unavailable on vehicle values in a large scale stressed liquidation.
To address this variability, we apply haircuts to our projection
of vehicle values and make assumptions we believe to be appropriate about
these recovery value haircuts. Consequently, the rating action
is based on limited historical data.
V-SCORE AND LOSS SENSITIVITY
Moody's V Score. The V Score for this transaction is Medium,
which is the same as the V score assigned for the U.S. Rental
Car ABS sector. The V Score indicates "Medium" uncertainty about
critical assumptions.
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 B1 PDR of ABCR's parent was to immediately
decline to B3, Caa1, Caa2 and Caa3 and (b) the assumed modeled
haircuts to estimated depreciated vehicle market values were increased
by 5%, 10% and 15%. Haircuts are expressed
as a percentage of the estimated depreciated market value of the vehicle
collateral. We model potential vehicle 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: 5%, 10% and
15%. For example, if one of the triangular distribution
haircuts in the base case is (5%, 15%, 30%),
and this is increased by 5% points, then the resulting stressed
haircut would be a triangular distribution of (10%, 20%,
35%).
Using such assumptions, the Aaa initial model-indicated output
for the Class A Notes might change as follows: (a) with ABCR's
parent's PDR at B1, the Aaa initial note output would remain
Aaa under the base recovery but change to Aa1, Aa2 and A1 with each
lower recovery assumption; (b) with ABCR's parent's PDR
at B3, the Aaa initial note output would remain Aaa under the base
recovery but change to Aa1, Aa3 and A2 with each lower recovery
assumption; (c) with ABCR's parent's PDR at Caa1,
the Aaa initial note output would remain Aaa under the base recovery but
change to Aa1, Aa3 and A2 with each lower recovery assumption;
(d) with ABCR's parent's PDR at Caa2, the Aaa initial
note output would remain Aaa under the base recovery but change to Aa1,
A1 and A3 with each lower recovery assumption; (e) with ABCR's
parent's PDR at Caa3, the Aaa initial note output would remain
Aaa under the base recovery but change to Aa1, A1 and A3 with each
lower recovery assumption
Also using the above assumptions, the Baa2 initial model-indicated
output for the Class B Notes might change as follows: (a) with ABCR's
parent's PDR at B1, the Baa2 initial note output would remain
at Baa2 using the base recovery assumption but change to Ba1, B2
and below B3 with each lower recovery assumption; (b) with ABCR's
parent's PDR at B3, the Baa2 initial note output would change
to Baa3 using the base recovery assumption and change to Ba3, B3
and below B3 with each lower recovery assumption; (c) with ABCR's
parent's PDR at Caa1, the Baa2 initial note output would change
to Baa3 using the base recovery assumption and change to B1, below
B3 and below B3 with each lower recovery assumption; (d) with ABCR's
parent's PDR at Caa2, the Baa2 initial note output would change
to Baa3 using the base recovery assumption and change to B2, below
B3 and below B3 with each lower recovery assumption; (e) with ABCR's
parent's PDR at Caa3, the Baa2 initial note output would change
to Ba1 using the base recovery assumption and change to B3, below
B3 and below B3 with 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
The principal methodology used in this rating was "Moody's
Global Approach to Rating Rental Car ABS and Rental Truck ABS,"
published in July 2011. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology. Consistent with our methodology,
for this transaction we assume a purchase price for program which is 10%
below MSRP, to give credit to the volume discounts typically achieved
by rental car companies. We also assume the discount for non-program
(risk) vehicles is 15% to reflect both the terms required under
the transaction documentation and historic performance. Also we
note that the market value haircuts applied to the vehicles (i.e.,
the base haircut and the additional manufacturer haircut) are the same
as the indicative haircuts presented in our methodology.
Other methodologies and factors that may have been considered in the process
of rating this issue can also be found in the Research & Ratings directory,
in the Rating Methodologies sub-directory on www.moodys.com.
ADDITIONAL RESEARCH
A pre-sale report for this transaction is forthcoming. 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.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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 relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant 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
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Moody's did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments in this transaction.
Information sources used to prepare the rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a 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 Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
New York
Sally Acevedo
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Michael McDermitt
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service, Inc.
250 Greenwich Street
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Moody's assigns definitive ratings to Avis Budget Series 2011-5 senior-subordinate rental car ABS
