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Rating Action:

Moody's downgrades certain Avis Budget rental car securitizations

03 Mar 2009

New York, March 03, 2009 -- Moody's has downgraded five series of rental car asset backed notes issued by Avis Budget Rental Car Funding (AESOP), LLC, (RCF), a subsidiary of Avis Budget Rental Car LLC (ABCR), owner/ operator of Avis Rent A Car (Avis) and Budget Rent A Car (Budget). These downgrades reflect both the downgrade on February 5 of the corporate rating of Avis Budget Car Rental LLC from Ba2/ Negative Outlook to B2/ Negative Outlook and, in the case of the two series wrapped by MBIA Insurance, Inc. (MBIA), the downgrade on February 18 of MBIA to B3. As described below, Moody's incorporates the default probability of the sponsor in its methodology for rating rental car asset backed securitizations since, absent default, the sponsor is responsible for making monthly payments from which principal and interest payments on the rental car asset backed notes are made.

With this action, Moody's is publishing for the first time, the underlying ratings of two series of insured notes as a result of the downgrade of MBIA. Moody's Investors Service completed its review of the underlying ratings on these insured notes. The underlying ratings reflect the intrinsic credit quality of the notes in the absence of the guarantee. The current ratings on the notes named below are consistent with Moody's practice of rating insured securities at the higher of the guarantor's insurance financial strength rating and the underlying rating, based on Moody's modified approach to rating structured finance securities wrapped by financial guarantors.

The principal methodology used in rating each of the downgraded transactions is summarized below. Other methodologies and factors that may have been considered in the process of rating this issue can also be found at www.moodys.com in the Ratings Methodologies subdirectory of the Credit Policy & Methodologies directory.

COMPLETE RATING ACTIONS:

Issuer: Avis Budget Rental Car Funding (AESOP) LLC

Series 2003-4, Rental Car Asset-Backed Notes, Class A-4, currently B2, previously on July 18, 2008, downgraded to Baa3.

Financial Guarantor: Syncora Guaranty Inc., Caa1, under review direction uncertain.

Underlying Rating: B2, previously on July 18, 2008 assigned Baa3.

Series 2005-1, Rental Car Asset-Backed Notes, Class A-3, currently B1, previously on November 16, 2008, A2, placed on review direction uncertain

Financial Guarantor: MBIA Insurance Corp., B3

Underlying Rating: B1

Series 2006-1, Rental Car Asset-Backed Notes, currently Ba3, previously on November 16, 2008, A2, placed on review direction uncertain

Financial Guarantor: MBIA Insurance Corp., B3

Underlying Rating: Ba3

Series 2002-2 Variable Rate Rental Car Asset-Backed Notes, currently Aa3, previously on December 31, 2008, assigned Aa2

Series 2008 -1 Variable Rate Rental Car Asset-Backed Notes, currently Aa3, previously on December 31, 2008, assigned Aa2

PRINCIPAL RATING METHODOLOGY

The primary asset backing the downgraded transactions is an interest in a loan indirectly secured by vehicles comprising the bulk of the Avis and Budget daily rental car fleets, including both 'program' vehicles (acquired vehicles subject to repurchase by the related auto manufacturer at pre-set prices) and non-program vehicles (acquired vehicles that do not benefit from such repurchase agreements).

The key factors in Moody's rating analysis include the probability of default of ABCR, the likelihood of bankruptcy default of the auto manufacturers providing vehicles to the rental car fleet owned by RCF, and the recovery rate on the rental car fleet in case 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 corporate family rating and Moody's idealized default rates. Like all rental car companies, ABCR's fleet (the majority of which is owned by RCF) includes both program cars and non-program or 'risk' cars. Under the terms of the simulation, in cases where ABCR does not default then it is assumed that bondholders are repaid in full and no liquidation of the RCF rental car fleet is necessary. In cases where ABCR does default, the RCF fleet must be liquidated in order to repay bondholders. In those cases, defaults of the related auto manufacturers must also be simulated. Due to the Detroit Three's current highly uncertain credit status, their defaults were simulated based on estimates for probability of default provided by Moody's corporate analysts which incorporated estimates for the likelihood of both Chapter 7 and Chapter 11 bankruptcies as well as the potential, in a Chapter 11 scenario, for an auto manufacturer to honor its repurchase obligation.

In simulating liquidation of the rental car fleet following an ABCR default, it is assumed the non-program fleet will be sold at the end of a six-month delay period with certain haircuts to the estimated market value of the vehicles at time of liquidation. The delay is incorporated to reflect potential legal challenges to obtaining control of the fleet and the potential difficulties of marshaling and selling such a large quantity of vehicles. If at the same time an auto manufacturer also defaults, additional haircuts are assumed for its portion of the fleet. We assume more stressful haircuts for a Chapter 7 filing by the manufacturer than for a Chapter 11 reorganization.

For program vehicles, it is assumed that when ABCR defaults, the program vehicles will be disposed of based on the default status of each related manufacturer. If a manufacturer does not default, then, at the end of the six-month delay period, that manufacturer's program vehicles will be turned back to the manufacturer based on the terms of the buyback agreement. If the manufacturer is assumed to be in Chapter 11, we assume that there is a certain probability that the buyback obligation nevertheless will be honored. If the buyback agreement is honored, the program vehicles will be put back to the manufacturers based on the buyback agreement. If the buyback agreement is rejected, then it is assumed that the defaulting manufacturer's program vehicles will be sold as risk vehicles in the auction market, with the haircut for risk vehicles in Chapter 11 applied. If a manufacturer is assumed to be in Chapter 7, then we assume that the buyback agreement is never honored and the manufacturer's program vehicles will be liquidated as risk vehicles in the auction market, with the haircut for risk vehicles in Chapter 7 applied.

In all cases, the market value of a vehicle at time of liquidation is estimated using market depreciation data from the National Automobile Dealers Association for each manufacturer in the collateral pool. Recovery rate is calculated as disposal proceeds divided by book value (value under the terms of the securitization) at the time of disposal.

Additional research is available at www.moodys.com.

New York
Mark DiRienz
Managing Director
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael McDermitt
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades certain Avis Budget rental car securitizations
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