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Rating Action:

Moody's upgrades Centre Point Funding LLC, Series 2006-1 securitization

21 Oct 2010

New York, October 21, 2010 -- Moody's has upgraded the rating of the Variable Funding Rental Truck Asset Backed Notes, Series 2006-1 (Series 2006-1) issued by Centre Point Funding LLC (Issuer) to Aa2(sf).

Issuer: Centre Point Funding LLC

Series 2006-1 Variable Rate Rental Truck Asset-Backed Notes, Upgraded to Aa2(sf); previously on May 8, 2008, Upgraded to A2(sf); originally bond balance was $375 million (maximum) and is currently approximately $40 million due to principal amortization.

RATINGS RATIONALE

Avis Budget Car Rental, LLC (ABCR, B2 positive), a subsidiary of Avis Budget Group, Inc., is the owner and operator of Avis Car Rental Group, LLC (Avis) and Budget Rent A Car System, Inc. (Budget). ABCR through Budget indirectly wholly-owns the Issuer and Budget Truck Rental, LLC (BTR). BTR is (1) the lessee of vehicles from the Issuer under an operating lease, (2) the administrator of the Issuer and (3) the sponsor of the ABS transaction.

The rating is based on (1) collateral in the form of a discrete portion of BTR's rental truck fleet, (2) the presence of ABCR as guarantor of BTR's obligations as lessee under an operating lease with the Issuer, as lessor, (3) minimum liquidity in the form of cash or letters of credit, (4) the legal structure and (5) the capabilities and the expertise of ABCR and BTR.

The upgrade results from a recent review of the Series 2006-1 and related series documentation, and reflects a combination of structural benefits derived from a subsequent related series issuance by the Issuer and fuller and more accurate recognition of the available credit enhancement.

In March 2010, the Issuer issued its Series 2010-1 Rental Truck Asset Backed notes (Series 2010-1). In conjunction with such issuance, provisions were included for a backup administrator and a liquidation agent, features which mitigate operational risk for both the new issuance and the existing Series 2006-1. Moody's review has also found that the defined required level of credit enhancement for Series 2006-1 significantly exceeds the amount previously assumed.

Absent the benefit of the structural mitigants to operational risk, the rating would have been capped below the Aa(sf) category regardless of enhancement levels. However, having concluded that the Series 2010-1 structural mitigants just described also benefit Series 2006-1, the higher actual (as documented) enhancement levels are consistent with an Aa2(sf) rating. At the same time, the new rating also reflects Moody's view that the remaining inherent operational risk in this transaction renders rating levels higher than Aa2(sf) inappropriate.

In the event of an ABCR default, Moody's believes that the likelihood of a Chapter 7 bankruptcy is very low. If ABCR filed Chapter 11, ABCR might choose to exit the rental truck business since it is not key to ABCR's overall business strategy (unlike its rental car business). In our opinion ABCR has a strong incentive to make sure any disposition of trucks is orderly since ABCR's incentives are well-aligned with investors, as securitization is the principal form of debt financing for a material portion of BTR's rental truck fleet and a substantial portion of ABCR's rental car fleet. ABCR or a subsidiary retains a substantial equity interest in its rental car and rental truck ABS programs. Nevertheless, an exit or a downsizing of the rental truck business by ABCR could expose the BTR sponsored rental truck ABS transactions to market value risk which is more difficult to predict for trucks than for cars. Disposition of trucks occurs irregularly (trucks are usually older and more heavily used prior to their disposition than are non-commercial vehicles). Fewer re-sale value observation points exist for trucks than are available for non-commercial vehicles. And, unlike non-commercial vehicles, data is unavailable on truck values in a large scale stressed liquidation. To address this variability, we make assumptions we believe to be conservative about appropriate recovery value haircuts, but which we believe would not be appropriate for a rating higher than Aa2(sf).

KEY FACTORS IN RATING ANALYSIS

The key factors in Moody's rating analysis include the probability of default of ABCR (as guarantor of BTR's obligations as lessee), the likelihood of a bankruptcy or default by the manufacturers of the trucks backing the ABS, and the recovery rate on the rental truck fleet in case ABCR defaults. Monte Carlo simulation modeling was used to assess the impact on bondholders of these variables.

Moody's ratings analysis makes assumptions about key factors, such as (1) the likelihood of default of ABCR (as the guarantor of BTR's lessee obligations) and the truck manufacturers, (2) the composition of the pool's truck mix over time and (3) the realizable value of the portion of the fleet backing the ABS should fleet liquidation be necessary. The last assumption in particular has relatively high potential variability for the following reasons. Disposition of trucks occurs irregularly (trucks usually have a longer use (i.e., older age) prior to their disposition than do non-commercial vehicles). Fewer re-sale value observation points exist for trucks than there are for non-commercial vehicles. And, like non-commercial vehicles, data is unavailable on truck values in a large scale stressed liquidation. To address this variability, we make assumptions we believe to be conservative about appropriate recovery value haircuts. Consequently, the rating action was based on limited historical data.

PRINCIPAL RATING METHODOLOGY

The principal methodology used in rating the notes 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.

The default probability of ABCR is simulated based on its probability of default rating and Moody's idealized default rates. In addition, we stress the rating of ABCR to provide a limited degree of de-linkage of the rated ABS from ABCR's rating.

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 Issuer's rental truck fleet backing the ABS is necessary.

In cases where ABCR does default, we always assume that the portion of the Issuer's 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 Ford's and GM's high concentrations in the pool and non-investment grade ratings, but low likelihood of closure (Chapter 7), 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.

Upon liquidation, the trucks are assumed to be sold in the open market. The truck pool is currently static (its revolving period has ended) although trucks may drop out due to reaching age limitations or due to casualty.

he depreciated market value of a truck at time of liquidation before any haircuts are applied is estimated using market depreciation data from Black Book for each model of truck by manufacturer in the collateral pool. In making this calculation we give credit to the fact that the original purchase prices for the trucks were below MSRP by assuming the discount to MSRP was 10% less than the discount to MSRP that BTR has actually achieved for the vehicles in the securitized pool. We also assume a delay in sale of nine months and therefore net out an additional nine months of depreciation. This nine month delay in fleet liquidation contemplates potential legal challenges to obtaining control of the fleet and even more significant, the potential difficulties of marshaling and selling the pool's trucks given a market with limited market liquidity.

The base liquidation value of sold trucks is determined by applying a base haircut to the estimated depreciated market value. The base haircut is simulated using a triangular distribution (i.e., minimum, mode, maximum) with values of (10%, 22%, 33%). We also simulate the manufacturer's status: non-bankrupt or bankrupt. An additional 10% haircut is applied to the base liquidation value of the trucks from any manufacturer whose simulated status is bankrupt. We believe such moderate haircut is appropriate for trucks from bankrupt manufacturers given our view that the manufacturer's bankruptcy status has only a moderate linkage to truck resale value.

Finally, unlike rental car ABS, none of the trucks in the pool benefit from program agreements with the manufacturers (that is, agreements where the manufacturer guarantees either the minimum depreciation or the resale value of the trucks upon disposition) and as such no modeling of such feature is necessary.

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 6 months.

ADDITIONAL RESEARCH

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.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating is the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

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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.

New York
Sally Acevedo
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Everett Rutan
Senior Vice President
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.

Moody's upgrades Centre Point Funding LLC, Series 2006-1 securitization
No Related Data.
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