Toronto, September 22, 2010 -- Moody's Investors Service has assigned the long term ratings to each of
Series 2010-1, Series 2010-2 and Series 2010-3
Variable Funding Floating Rate Asset Backed Notes (the "Notes").
Issuer: WTH Car Rental ULC
Series 2010-1 Floating Rate Variable Funding Notes, Assigned
Series 2010-2 Floating Rate Variable Funding Notes, Assigned
Series 2010-3 Floating Rate Variable Funding Notes, Assigned
The Notes were issued by WTH Car Rental ULC (the "Issuer").
The Issuer is a subsidiary of WTH Funding Limited Partnership (the "Partnership")
whose general partners are Budgetcar Inc. and Aviscar Inc.
Budgetcar Inc. and Aviscar Inc. carry on the rental car
business for the Partnership in their capacities as general partners.
Budgetcar Inc. and Aviscar Inc. are indirect Canadian subsidiaries
of Avis Budget Car Rental LLC (ABCR, rated B2) which provides a
performance guarantee in support of the transaction obligations of Budgetcar
Inc. and Aviscar Inc.
The ratings on the Notes are based on (1) collateral in the form of the
rental fleet vehicles, (2) minimum liquidity in the form of cash
or letters of credit, (3) the required level of credit enhancement
in the form of overcollateralization, (4) the legal structure,
and (5) the capabilities and the expertise of ultimate parent Avis Budget
Car Rental LLC and its Canadian car rental operating subsidiaries.
The vehicles backing the Notes are leased by the Issuer to the Partnership
and used by the Partnership in its daily car rental business. The
vehicles include both program vehicles (acquired vehicles subject to repurchase,
or guaranteed a minimum depreciation or resale value, by the related
auto manufacturer at pre-set prices) and non-program vehicles
(acquired vehicles that do not benefit from such repurchase or guaranteed
The principal methodology used in rating the WTH Car Rental ULC transaction
is described below. 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.
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
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 B2 rating of ABCR was to immediately decline
to Caa1, Caa2 and Caa3 and (b) the assumed modeled haircuts to estimated
depreciated vehicle market values were increased by 5%, 15%
and 25%. 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%, 15% and 25%. For example,
if 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 Aa2 initial model-indicated rating
for the Notes might change as follows: (a) with ABCR rated B2,
the Aa2 initial note rating would remain at Aa2 under both the base recovery
and 5% increase in market value haircut assumptions but change
to A1 and Baa3 with each lower recovery assumption; (b) with ABCR
rated Caa1, the Aa2 initial note rating would remain Aa2 using the
base recovery and 5% increase in market value haircut assumption
but change to A2 and Ba1 with each lower recovery assumption, (c)
with ABCR rated Caa2, the Aa2 initial note rating would remain Aa2
using the base recovery assumption and 5% increase in market value
haircut assumptions but change to A3 and Ba2 with each lower recovery
assumption; and (d) with ABCR rated Caa3, the Aa2 initial note
rating would remain Aa2 using the base recovery assumption but change
to Aa3, Baa2 and Ba3 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
The key factors in Moody's rating analysis include (1) the probability
of default by ABCR (and where we mention ABCR in this methodology description
we also mean that a ABCR default implies the default of its Canadian subsidiaries
Aviscar Inc. and Budgetcar Inc.), (2) the likelihood
of a bankruptcy or default by the auto manufacturers providing vehicles
to the rental car fleet owned by the Issuer, and (3) the recovery
rate on the rental car fleet in the event that ABCR defaults. Monte
Carlo simulation modeling was used to assess the impact on bondholders
of these variables.
The default probability of ABCR was simulated based on its current probability
of default rating and Moody's idealized default rates. We
stress the rating of ABCR to provide a limited degree of de-linkage
of the rated ABS from the corporate rating of the ultimate sponsor.
In this case, we stressed the rating of ABCR close to default to
provide a degree of ratings stability appropriate to the Notes'
initial rating of Aa2.
Like all rental car entities, the Partnerships fleet (the majority
of which is owned by and leased from the Issuer) includes both program
and non-program vehicles (also known as 'risk' vehicles).
Under the terms of the simulation, in cases where ABCR does not
default it is assumed that bondholders are repaid in full and no liquidation
of the Issuers rental car fleet backing the ABS is necessary.
In cases where ABCR does default, we always assume that the portion
of the fleet backing the ABS must be liquidated in order to repay the
bondholders. In those cases, the default probability of the
related manufacturers must also be simulated. Due to Chrysler's,
Ford's and GM's weak credit profiles, their defaults
were simulated based on estimates for probability of default provided
by Moody's corporate analysts. These default estimates differentiate
between default with continued operation and default with cessation of
operations. The default probability of the other manufacturers
is derived from their respective ratings.
In simulating liquidation of the rental car fleet following an ABCR default,
it is assumed that the portion of the program vehicle fleet associated
with non-defaulting manufacturers (both non-bankrupt manufacturers
and bankrupt Chapter 11 (or the equivalent under Canadian law that would
apply to the Canadian subsidiaries of these manufacturers) manufacturers
honoring their program obligations) is returned to the related manufacturer
at full book value. For the non-program (risk) vehicle fleet,
as well as the portion of the program vehicle fleet associated with defaulting
manufacturers not honoring obligations on their program vehicles,
it is assumed the vehicles will be sold in the open market.
For vehicles sold in the open market, the market value of a vehicle
at the time of liquidation, before any haircuts are applied,
is estimated using market depreciation data from the National Automobile
Dealers Association (NADA) for each manufacturer with vehicles in the
collateral pool. In making this calculation we generally assume
a purchase price for program and non-program (risk) vehicles which
is 10% below MSRP, to give credit to the volume discounts
typically achieved by rental car companies. However, in the
case of ABCR, we assume the discount for non-program (risk)
vehicles is 15% to reflect both the terms required under the transaction
documentation and historic performance. In addition, we assume
a delay in sale of six months and therefore net an additional six months
of depreciation. This six month delay in fleet liquidation following
a default by ABCR contemplates potential legal challenges to obtaining
control of the fleet and the potential difficulties of marshaling and
selling the vehicles. The base liquidation value of sold vehicles
is determined by applying a base haircut to this estimated depreciated
market value. The base haircut is simulated using a triangular
distribution (i.e., minimum, mode, maximum)
with values of (5%, 15%, 30%).
The resulting calculation provides the base liquidation value.
Additional haircuts may be applied to the base liquidation value depending
on the manufacturer's simulated status: non-bankrupt,
bankrupt Chapter 11 or bankrupt Chapter 7. No further haircuts
are applied to either (i) non-program (risk) and program vehicles
from non-bankrupt manufacturers or (ii) program vehicles from bankrupt
Chapter 11 manufacturers who are assumed to honor their program obligations.
However, in all other cases, the base liquidation value is
further reduced. For bankrupt Chapter 11 manufacturers, we
reduce the base liquidation of their non-program (risk) vehicles
and their program vehicles whose obligations are assumed not to be honored
by multiplying the base liquidation value by a haircut, which is
simulated using a triangular distribution with input parameters (14%,
18%, 19%). For manufacturers assumed to be
in Chapter 7, we reduce base liquidation value of their vehicles
by multiplying the base liquidation value by a haircut, which is
simulated using a triangular distribution with input parameters (25%,
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.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's Investors
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Additional research, including 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. In addition,
Moody's publishes a weekly summary of structured finance credit,
ratings and methodologies, available to all registered users of
our website, at www.moodys.com/SFQuickCheck.
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
for further information.
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
Vice President - Senior Analyst
Structured Finance Group
Moody's Canada Inc.
Moody's Canada Inc.
Moody's assigns ratings to Avis Budget Canada rental car ABS
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