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Rating Action:

Moody's confirms rating of International Fleet Financing No.1 B.V., rental car ABS

Global Credit Research - 01 Jul 2010

London, 01 July 2010 -- Moody's Investors Service has today confirmed the long-term credit rating of the Class A notes issued by International Fleet Financing No.1 B.V.:

-Euro VFN 1,332,799,000 notes, confirmed at Baa3, previously on 17 July 2009 downgraded from Baa2 to Baa3 Placed Under Review for Possible Downgrade.

-AUD VFN 325,000,000 notes, confirmed at Baa3, previously on 17 July 2009 downgraded from Baa2 to Baa3 Placed Under Review for Possible Downgrade.

Moody's considers there is a high level of linkage between the rating of The Hertz Corporation "Hertz" and the rating of the notes, as highlighted in Moody's New Issue Report published on the transaction at closing. As a result, following the downgrade of Hertz to B1 in July 2009, Moody's downgraded the notes and placed them on review for further downgrade due to concerns over general deterioration in global auto markets, including weakening second hand car market values and the declining credit quality of the manufacturers represented in the fleet.

Today's rating action concludes the review initiated on 17 July 2009 and reflects the widespread stabilisation seen in used car prices.

The notes are backed by a pool of rental car vehicles in France, the Netherlands and Australia. In each country, bankruptcy remote SPV, "FleetCo", purchases a fleet of vehicles that are then leased to a local Hertz subsidiary, "OpCo", under a Master Lease Agreement (MLA). Under the terms of this agreement, the OpCo is responsible for paying a regular amount to FleetCo that covers FleetCo's expenses as well as any depreciation of the leased vehicles. At the end of the lease term, the vehicles are either sold back to their manufacturer at a pre-agreed price (in the case of Program Cars) or sold on the open market (in the case of Risk or non-Program Cars).

Given that all depreciation and costs are covered by the MLA, the primary risk that note holders are exposed to is the insolvency of OpCo. It is possible that the administrator of an insolvent OpCo, would prevent FleetCo repossessing and selling the vehicles for a period of time (the bankruptcy stay period). During the stay period, the fleet would continue to depreciate, but FleetCo would no longer be receiving payments under the MLA. It is possible that any buyback arrangements with respect to program cars would lapse, and therefore almost all vehicles in the fleet could be sold at current market value.

Therefore, in the event of an insolvency of OpCo, FleetCo will lose the difference between the book value of the fleet at the time of the insolvency, and the realised market value of the fleet when it is eventually sold after the stay period ends.

Moody's notes that book value depreciation rates of the non- program vehicles are regularly corrected to reflect their market value depreciation. In addition, buyback contracts are regularly re-negotiated to reflect current market conditions. This self correction mechanism helps to ensure that, in the event of an OpCo insolvency, the book value of the fleet is close to the market value. However, the risk that the vehicles are subject to a stay period remains. During such a stay, the fleet will continue to depreciate, whilst no further payments are made under the MLA. Therefore, in the event of an OpCo insolvency, the available enhancement has to be sufficient to cover this excess depreciation as well as the cost of liquidating the fleet.

In order to assess the adequacy of the enhancement to cover this risk at the current rating level, Moody's says it has adopted the following simplified monitoring approach for this transaction. First it determines the expected excess depreciation over the expected stay period (using fleet level figures reported by Hertz in the monthly investor reports). This is then compared to the available enhancement to obtain the depreciation multiple. The current level of this multiple is 2.8x and historically has been between 2.8x and 3.5x. Moody's says it would consider that the current rating of the notes would not be affected as long as this multiple is above 2.5x, assuming Hertz credit quality is unchanged. Should this multiple fall below 2.5x, rating pressure could arise. In addition, Moody's will continue to track the ratings of the manufacturers represented in the fleet as a significant weakening of the credit quality of the manufacturers will put pressure on the ratings.

Moody's principal methodology used in assessing the ratings is described in the New Issue Report of the transaction published in July 2008. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website. 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 ratings address the expected loss posed to investors by the legal final maturity of the notes. Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.

For further information, please visit our website www.moodys.com or contact Moody's Client Service Desk (+44 20) 772 5454.

Paris
Annick Poulain
Managing Director
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Nicholas de Swardt
Vice President
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's confirms rating of International Fleet Financing No.1 B.V., rental car ABS
No Related Data.
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