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.
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
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
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
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.
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ratings and methodologies, available to all registered users of
our website, at www.moodys.com/SFQuickCheck.
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Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
Senior Vice President
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades Centre Point Funding LLC, Series 2006-1 securitization
250 Greenwich Street
New York, NY 10007