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22 Apr 2011
New York, April 22, 2011 -- Moody's has placed on review for possible upgrade two series of rental
car asset backed notes issued by Rental Car Finance Corp.,
a special purpose entity owned by Dollar Thrifty Automotive Group,
Inc. (Dollar Thrifty, B2 positive). This is prompted
by an upgrade in the corporate rating of the sponsor to B2, outlook
positive, from B3, outlook positive, on April 19,
2011.
COMPLETE RATING ACTIONS:
Issuer: Rental Car Finance Corp.
Series Description: Series 2006-1 Rental Car Asset-Backed
Notes
Class Description: Class A
Current Rating: Ba1 Placed Under Review for Possible Upgrade;
previously on April 29, 2010 upgraded to Ba1
Underlying Rating: Ba1 Placed Under Review for Possible Upgrade;
previously on April 29, 2010 upgraded to Ba1
Financial Guarantor: Ambac Assurance Corporation (NR; rating
withdrawn on April 7, 2011)
Series Description: Series 2007-1 Rental Car Asset-Backed
Notes
Class Description: Class A
Current Rating: Ba2 Placed Under Review for Possible Upgrade;
previously on April 29, 2010 upgraded to Ba2
Underlying Rating: Ba2 Placed Under Review for Possible Upgrade;
previously on April 29, 2010 upgraded to Ba2
Financial Guarantor: Financial Guaranty Insurance Company (NR;
rating withdrawn on March 29, 2009)
The actions are motivated primarily by the strengthening credit profiles
of Dollar Thrifty as the sponsor, master servicer and the directly-owned
DTG Operations, Inc. as the lessee, as reflected by
the upgrade of its rating to B2, positive from B3, positive.
The probability of default of the sponsor, while only one of several
important variables which drive our ratings of rental car asset-backed
securities, is the single most important factor. The principal
methodology used in rating the transactions 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.
In addition, Moody's publishes a weekly summary of structured finance
credit, ratings and methodologies, available to all registered
users of its website, at www.moodys.com/SFQuickCheck.
Separately, we note that following the termination of Dollar Thrifty's
merger agreement with Hertz Global Holdings, Inc. (Hertz)
last year after Dollar Thrifty did not obtain the requisite votes to execute
its definitive merger agreement with Hertz at the special meeting of shareholders
held on September 30, 2010, Dollar Thrifty and Avis Budget
have been cooperating to pursue antitrust regulatory clearance of a potential
acquisition of Dollar Thrifty's common stock by Avis Budget. Moody's
views the potential acquisition as neutral to credit positive to Dollar
Thrifty-sponsored ABS. Given the uncertainties concerning
the completion of the acquisition, such as the outcome of FTC approval,
Moody's will take ratings actions if the transaction comes to fruition,
depending on its ultimate impact on the Dollar Thrifty-sponsored
ABS.
PRINCIPAL RATING METHODOLOGY
The primary asset backing the notes is the monthly lease payments owed
by DTG Operations, Inc., and guaranteed by the sponsor
under an operating lease, as well as a pool of vehicles comprising
the bulk of the sponsor's daily rental car fleet, including 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 depreciation agreements).
The vehicles are owned by a bankruptcy-remote entity, referred
to as the lessor, which may also be the issuer or be an affiliate
of the issuer. The sponsor and/or operating affiliates act as lessees.
For quantitative analysis Moody's uses a monte carlo simulation model
which simulates the potential cash flows from the vehicle assets and any
additional credit enhancements and the rated obligation repayment requirements.
The key factors in Moody's rating analysis include the probability of
default of the sponsor, the likelihood of a bankruptcy or default
by the auto manufacturers providing vehicles to the rental car fleet owned
by the lessor, and the recovery rate on the rental car fleet in
case the rental car sponsor defaults. Monte Carlo simulation modeling
was used to assess the impact on bondholders of these variables.
The default probability of the sponsor is simulated based on its current
corporate probability of default rating and Moody's idealized default
rates. For surveillance purposes, in the event that an upgrade
above the initial rating is being considered, we stress the rating
of the sponsor as lessee to provide a limited degree of de-linkage
of the rated ABS from the corporate rating of the sponsor, otherwise,
the current rating of the sponsor is used.
All of the sponsoring rental car companies fleets include both program
vehicles and non-program vehicles (also known as 'risk' vehicles).
Under the terms of the simulation, in cases where the related sponsor
does not default it is assumed that bondholders are repaid in full and
no liquidation of the lessor's rental car fleet is necessary. In
cases where the sponsor does default, the lessor's fleet must be
liquidated in order to repay their secured loans to the Issuer,
and ultimately 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 high concentrations in the pool
and non-investment grade ratings or non-ratings, as
applicable, 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.
For each manufacturer simulated to be in Chapter 11, we further
simulate whether each such manufacturer will honor its obligation with
respect to program vehicles or default on that obligation.
In simulating liquidation of the rental car fleet following a sponsor
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 manufacturers honoring their program
obligations) is returned to the related manufacturer at full book value.
For the non-program (risk) fleet, as well as the portion
of the program 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 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 rental car ABS sponsored by Avis Budget,
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 the sponsor's default
contemplates potential legal challenges to obtaining control of the fleet
and the potential difficulties of marshaling and selling such a large
quantity of 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%,
35%, 50%).
With respect to transaction maturity, for analytical purposes Moody's
is assigning each transaction to one of three assumed maturity buckets
based on its actual remaining expected maturity. If the remaining
expected maturity is less than 18 months, a remaining maturity of
12 months will be assumed. If the remaining expected maturity is
18 months or more but less than 37 months, 24 months will the input
to the model. If the remaining expected maturity is 37 months or
more, 60 months will be assumed. This is a method of quantifying
our view that there is greater uncertainty regarding fleet mix by manufacturer
for transactions with longer terms than for those with shorter terms.
Moody's Investors Service did not receive or take into account a third
party due diligence report on the underlying assets or financial instruments
related to the monitoring of this transaction in the past six months.
ADDITIONAL RESEARCH
Reports for the above transactions and other transactions and the 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.
New York
Xiaochao Wang
Vice President - Senior Analyst
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 Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's places Dollar Thrifty-sponsored rental car asset backed securities on review for possible upgrade
No Related Data.
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