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Rating Action:

Moody's assigns definitive ratings to Avis Budget Series 2018-2 rental car ABS

25 Oct 2018

$550 million of securities affected

New York, October 25, 2018 -- Moody's Investors Service ("Moody's") has assigned definitive ratings to the Series 2018-2 fixed rate Rental Car Asset Backed Notes issued by Avis Budget Rental Car Funding (AESOP) LLC (the issuer). The Series 2018-2 Notes have an approximate 65 month expected final maturity. The issuer is an indirect subsidiary of the sponsor, Avis Budget Car Rental, LLC (ABCR, Ba3, positive). ABCR is a subsidiary of Avis Budget Group, Inc. (unrated). ABCR is the owner and operator of Avis Rent A Car System, LLC (Avis), Budget Rent A Car System, Inc. (Budget), Zipcar, Inc and Payless Car Rental, Inc. (Payless).

Moody's also announced today that the issuance of the Series 2018-2 Notes, 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 ratings are as follow:

Issuer: Avis Budget Rental Car Funding (AESOP) LLC, Series 2018-2

Series 2018-2 Class A fixed rate Rental Car Asset Backed Notes, Definitive Rating Assigned Aaa (sf)

Series 2018-2 Class B fixed rate Rental Car Asset Backed Notes, Definitive Rating Assigned A1 (sf)

Series 2018-2 Class C fixed rate Rental Car Asset Backed Notes, Definitive Rating Assigned Baa3 (sf)

RATINGS RATIONALE

The definitive ratings for the 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 and Class B Notes, subordination provided by the Class B and C Notes and subordination provided by the Class C Notes, respectively.

The total enhancement requirement for the Series 2018-2 Notes is dynamic and is determined as the sum of (1) 13.00% for vehicles subject to a guaranteed depreciation or repurchase program from eligible manufacturers (program vehicles) rated at least Baa3; (2) 16.25% for all other program vehicles; and (3) 22.15% 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 and C Notes, which represent approximately 18.0% of the outstanding Series 2018-2 Note balance. The Class B Notes benefit from subordination provided by the Class C Notes, which represent approximately 8.25% of the outstanding Series 2018-2 Note balance.

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

Risk of sponsor default: Moody's assumed a 72% decrease in the probability of default (from Moody's idealized default probability tables) implied by the Ba3 rating of the sponsor. This reflects Moody's view that, in the event of a bankruptcy, Avis 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. We arrive at the 72% decrease assuming an 80% probability Avis would reorganize under a Chapter 11 bankruptcy and a 90% probability Avis would affirm its lease payment obligations in the event of Chapter 11.

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 -- Mean: 19%

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

Fixed Program Haircut upon Sponsor Default: 10%

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

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

Non-program Vehicles: 70%;

Program Vehicles: 30%

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

Aa/A Profile: 20%, 2, A3

Baa Profile: 60%, 3, Baa3

Ba/B Profile: 20%, 1, B1

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

Aa/A Profile: 0%, 0, A3

Baa Profile: 80%, 2, Baa3

Ba/B Profile: 20%, 1, B1

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

A fixed set of time horizon assumptions, regardless of the remaining term of the transaction, is used 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.

The principal methodology used in these ratings was "Moody's Global Approach to Rating Rental Fleet Securitizations" published in December 2016. Please see the Rating Methodologies page on www.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 notes, as applicable if, among other things, (1) the likelihood of the transaction's sponsor defaulting on its lease payments were to decrease, (2) assumptions of the credit quality of the pool of vehicles collateralizing the transaction were to increase, as reflected by a stronger mix of program and non-program vehicles and stronger credit quality of vehicle manufacturers, and (3) the residual values of the non-program vehicles collateralizing the transaction were to increase materially relative to Moody's expectations.

Down

Moody's could downgrade the ratings of the notes if, among other things, (1) the likelihood of the transaction's sponsor defaulting on its lease payments were to increase, (2) 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, (3) the residual values of the non-program vehicles collateralizing the transaction were to decrease materially relative to Moody's expectations.

Loss and Cash Flow Analysis:

In rating this transaction, we use a Monte Carlo simulation model to project pool loss and any resulting loss to investors. In each scenario in our simulation, we first simulate whether or not the sponsor defaults. If the sponsor does not default, we assume that investors are paid in full. If the sponsor does default, we simulate whether or not each manufacturer also defaults.

For non-program vehicles, we assume that following a sponsor default the disposition agent sells the vehicles in the used-vehicle market and we determine their assumed recovery values by applying a haircut to the vehicle book values at the time of the sponsor default. For program vehicles, we differentiate our assumptions based on whether or not the manufacturer also defaults. If the manufacturer does not default, we assume that the manufacturer buys back its program vehicles in the rental fleet, with an assumed time lag. If the manufacturer defaults, we assume that the manufacturer does not buy back its program vehicles in the rental fleet and the disposition agent disposes of the manufacturer's program vehicles in the used-vehicle market. We determine the assumed recovery value of those vehicles by applying a haircut to book values at the time of default similar to that for non-program vehicles.

In each scenario of our Monte Carlo simulation in which the sponsor has defaulted, we apply the disposal value of the rental fleet to the different classes of securities in the securitization, based on the structural tranching and priority of payments in the securitization, to calculate the loss to investors in each class of securities. We incorporate into that loss calculation the extent to which credit enhancement is available to offset shortfalls arising from deficiencies in fleet value. We then calculate the expected loss to investors and compare the note's calculated expected loss to the expected loss benchmarks implied by our idealized cumulative expected loss rates.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Moody's describes its loss and cash flow analysis in the section "Ratings Rationale" of this press release.

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 or category/class of debt, this announcement provides certain 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 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 ratings tab on the issuer/entity page for the respective issuer on www.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.

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

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Arti Mattu
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

Jian Hu
MD - Structured Finance
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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