Approximately $4.949 billion of asset backed securities affected
New York, December 10, 2010 -- Moody's has upgraded nine series of rental car asset backed notes issued
by the sponsors: Avis Budget Car Rental LLC (Avis Budget),
and The Hertz Corporation (Hertz).
ISSUER: Avis Budget Rental Car Funding (AESOP) LLC
Series Description: Series 2006-1 Rental Car Asset-Backed
Notes
Current Rating: A3(sf); previously Baa2(sf), placed under
review for possible upgrade on November 22, 2010
Financial Guarantor: MBIA Insurance Corporation (B3; previously
on 2/18/2009 Downgraded to B3 from Baa1)
Series Description: Series 2007-2 Rental Car Asset-Backed
Notes
Current Rating: A3(sf); previously Baa2(sf), placed under
review for possible upgrade on November 22,2010
Financial Guarantor: Ambac Assurance Corporation (Caa2 confirmed
on November 23, 2010; previously on 3/26/2010 Caa2 placed under
review for possible upgrade)
Series Description: Series 2009-1 Rental Car Asset-Backed
Notes
Current Rating: Aa1(sf); previously on July 24, 2009
assigned A2(sf) , placed under review for possible upgrade on November
22, 2010
Series Description: Series 2009-3 Variable Funding Asset
Backed Notes
Current Rating: Aaa(sf); previously on December 3, 2009
assigned Aa2(sf), placed under review for possible upgrade on November
22, 2010
Series Description: Series 2010-2 Rental Car Asset-Backed
Notes
Class Description: Class B
Current Rating: A1(sf); previously on March 24, 2010
assigned Baa2(sf), placed under review for possible upgrade on November
22, 2010
Series Description: Series 2010-3 Rental Car Asset-Backed
Notes
Class Description: Class B
Current Rating: A2(sf); previously on March 24, 2010
assigned Baa2(sf), placed under review for possible upgrade on November
22, 2010
ISSUER: Hertz Vehicle Financing LLC
Series Description: Series 2009-1 Variable Funding Floating
Rate Asset Backed Notes
Current Rating: Aaa(sf); previously on September 22,
2009 assigned Aa1(sf), placed under review for possible Upgrade
on November 22, 2010
Series Description: Series 2009-2 Rental Car Asset-Backed
Notes
Class Description: Class B
Current Rating: A1(sf); previously on June 22, 2009 assigned
Baa2(sf), placed under review for possible upgrade on November 22,
2010
Series Description: Series 2010-1 Rental Car Asset-Backed
Notes
Class Description: Class B
Current Rating: A1(sf); previously on July 28,m 2010
assigned Baa2(sf), placed under review for possible upgrade
RATINGS RATIONALE
The actions are motivated, to varying degrees depending on the sponsor,
primarily by the strengthening credit profiles of both Ford Motor Company
and General Motors Limited, and secondarily by recent upgrades to
Hyundai Motor Company and Kia Motors Corp. and improved rental
car fleet diversification.
Separately, we note that Avis Budget submitted an acquisition bid
to purchase Dollar Thrifty Automotive Group (DTAG). Moody's views
the potential acquisition as credit positive to DTAG-sponsored
ABS, and views it as credit neutral to Avis-sponsored ABS.
Given the uncertainties concerning the completion of the acquisition,
such as the need for FTC approval, Moody's will take ratings
actions if the transaction comes to fruition, depending on its ultimate
impact on the DTAG-sponsored ABS.
KEY FACTORS IN RATING ANALYSIS
The key factors in Moody's rating analysis include (1) the probability
of default by the sponsor, as lessee, (2) the likelihood of
a bankruptcy or default by the auto manufacturers providing vehicles to
the rental car fleet owned by the issuer or other lessors, and (3)
the recovery rate on the rental car fleet in the event that the sponsor
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 the sponsor (and the vehicle
manufacturers who provide program agreements), (2) the composition
of the pool's vehicle mix over time and (3) the realizable value
of the portion of the fleet backing the ABS should fleet liquidation be
necessary. Data is unavailable on vehicle 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 primary asset backing the notes is the monthly lease payments owed
by the related sponsoring rental car company 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 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.
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.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings,parties not 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.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
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
Michael McDermitt
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Jiang Xu
Asst Vice President - Analyst
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 upgrades rental car asset backed securities sponsored by Avis Budget and Hertz
