New York, June 18, 2021 -- Moody's Investors Service ("Moody's") has assigned
ratings of Ba2 (sf) to the Series 2018-2 Class D fixed rate Rental
Car Asset Backed Notes and Ba2 (sf) to the Series 2019-2 and 2020-1
Class D Rental Car Asset Backed Notes to be 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,
B2 negative). ABCR is a subsidiary of Avis Budget Group,
Inc. 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 Class D of Series 2018-2,
2019-2 and 2020-1, 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 2018-2 Fixed Rate Rental Car Asset Backed Notes, Class
D, Definitive Rating Assigned Ba2 (sf)
Series 2019-2 Rental Car Asset Backed Notes, Class D,
Definitive Rating Assigned Ba2 (sf)
Series 2020-1 Rental Car Asset Backed Notes, Class D,
Definitive Rating Assigned Ba2 (sf)
RATINGS RATIONALE
The definitive ratings on the Class D Notes for the Series 2018-2,
2019-2 and 2020-1 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 track-record and expertise of ABCR as sponsor and administrator,
(4) the available credit enhancement, which consists of subordination
and over-collateralization, (5) minimum liquidity in the
form of cash and/or a letter of credit, and (6) the transaction's
legal structure.
The Class D notes benefit from dynamic credit enhancement primarily in
the form of overcollateralization. The credit enhancement level
for Class D notes fluctuates over time with changes in fleet composition
and will be determined as the sum of (1) 5% for vehicles subject
to a guaranteed depreciation or repurchase program from eligible manufacturers
(program vehicles) rated at least Baa3 by Moody's, (2) 8.5%
for all other program vehicles, and (3) 12.6% for
non-program (risk) vehicles, in each case, as a percentage
of the aggregate outstanding balance of Class A, B, C and
D notes net of the series allocated cash amount.
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 coronavirus pandemic has had a significant impact on economic activity.
Although global economies have shown a remarkable degree of resilience
to date and are returning to growth, the uneven effects on individual
businesses, sectors and regions will continue throughout 2021 and
will endure as a challenge to the world's economies well beyond the end
of the year. While persistent virus fears remain the main risk
for a recovery in demand, the economy will recover faster if vaccines
and further fiscal and monetary policy responses bring forward a normalization
of activity. As a result, there is a heightened degree of
uncertainty around our forecasts. Our analysis has considered the
effect on the performance of corporate assets from a gradual and unbalanced
recovery in US economic activity.
We regard the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
Below are the assumptions Moody's applied in the 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 B2 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 arrives at the 60% decrease assuming an 80% probability
Avis would reorganize under a Chapter 11 bankruptcy and a 75% probability
(90% assumed previously) 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: 90%
Program Vehicles: 10%
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.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Rental Fleet Securitizations" published in July 2020
and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1232483.
Alternatively, 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 Series 2018-2, 2019-2
and 2020-1 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 2018-2,
2019-2 and 2020-1 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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
In rating this transaction, Moody's used a cash flow model
to model cash flow stress scenarios to determine the extent to which investors
would receive timely payments of interest and principal in the stress
scenarios, given the transaction structure and collateral composition.
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 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.
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 www.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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
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 www.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 www.moodys.com.
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.
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
Senior Vice President/Manager
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
