DBRS Morningstar Confirms Ratings on Nine Classes of Avis Budget Rental Car Funding (AESOP) LLC

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the following classes of notes issued by Avis Budget Rental Car Funding (AESOP) LLC:

-- Series 2016-2 Notes, Class A at AAA (sf)
-- Series 2016-2 Notes, Class B at A (high) (sf)
-- Series 2016-2 Notes, Class C at BBB (sf)
-- Series 2017-2, Class A Notes at AAA (sf)
-- Series 2017-2, Class B Notes at A (high) (sf)
-- Series 2017-2, Class C Notes at BBB (sf)
-- Series 2018-1, Class A Notes at AAA (sf)
-- Series 2018-1, Class B Notes at A (high) (sf)
-- Series 2018-1, Class C Notes at BBB (sf)

DBRS Morningstar removed these ratings from Under Review with Negative Implications, where they were placed on June 29, 2020, and maintained on October 13, 2020.

Confirming the ratings on the notes and removing them from Under Review with Negative Implications considers DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the Coronavirus Disease (COVID-19), available in its commentary “Global Macroeconomic Scenarios: January 2021 Update,” published on January 28, 2021. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, and they were last updated on January 28, 2021, and are reflected in DBRS Morningstar’s analysis. The rating actions consider the moderate macroeconomic scenario outlined in the commentary, with the moderate scenario serving as the primary anchor for current ratings. The moderate scenario factors in increasing success in containment during the first half of 2021, enabling the continued relaxation of restrictions.

The rating actions reflect the following considerations:

-- In response to the pandemic, Avis Budget Group, Inc. (Avis or the Company) swiftly and methodically reduced its fleet size by 31% in 2020 in order to align fleet inventory with substantially lower demand. Fleet utilization rates improved over the same period and are near normal levels. Avis also significantly reduced its cost structure by removing $2.8 billion of expenses from its business operations. As of December 31, 2020, Avis reported $1.3 billion in available liquidity.

-- The rental car industry continues to encounter challenges stemming from the coronavirus, as travel and tourism activities have not yet resumed prepandemic volumes. While vaccination coverage rates increase in the U.S., the risk of new virus variants spreading could pose additional risk in returning to normalized business and leisure activity. While the ongoing effects of the coronavirus pandemic persist in 2021, Avis has taken significant and meaningful actions to withstand a continued slowdown in business.

-- Demand for used vehicles continues to be robust with current used vehicle inventories at or below normal levels. The potential impact of the worldwide shortage of semiconductor chips for new vehicle production may further increase demand for used vehicles, which could further support the current strong value of used vehicles.

-- Vehicle disposition channels are currently operating at normal capacity, particularly with the migration to digital formats. Potential localized or widespread coronavirus outbreaks, however, could result in some level of disruption in the future, which in turn, could affect the Company’s ability to dispose of additional excess fleet, if required.

-- Automotive manufacturer liquidity has been generally strong going into 2021, but the semiconductor chip shortage could pose production issues. Demand for new vehicles in 2021 will also be a factor for manufacturers as unemployment rates remain elevated in the U.S.

-- DBRS Morningstar’s criteria considers certain time horizons, by rating category, for the liquidation of the rental fleet after an operating company’s bankruptcy. DBRS Morningstar has not modified its methodology/criteria regarding liquidation time horizons and associated market value declines during the assumed liquidation period. It is possible that liquidation horizon and associated market value decline assumptions may be reconsidered at some point in the future if there are additional widespread shutdowns of businesses, including used vehicle auctions.

All classes are in compliance with their respective required Credit Enhancement (CE) levels as of the February 2021 payment date. The portfolio was comprised of approximately 13.36% program vehicles and 86.64% non-program vehicles. As measured by rolling three-month and six-month rolling averages, the ratio of aggregate Disposition Proceeds from all Non-Program Vehicles disposed of during a related Measurement Month to the aggregate Net Book Value of all Non-Program Vehicles disposed of during a related Measurement Month exceeds 115.5%.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is DBRS Morningstar Master U.S. ABS Surveillance (May 27, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:

The last rating action on these transactions took place on June 29, 2020, when DBRS Morningstar placed all classes for these transactions Under Review with Negative Implications.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

Lead Analyst: Hollie Reddington, Vice President, U.S. ABS – Global Structured Finance
Rating Committee Chair: Tim O’Neil, Managing Director, Head of Canadian Structured Finance
Initial Rating Date: May 18, 2016 (Avis Budget Rental Car Funding (AESOP) LLC, Series 2016-2); December 1, 2017 (Avis Budget Rental Car Funding (AESOP) LLC, Series 2017-2); and April 19, 2018 (Avis Budget Rental Car Funding (AESOP) LLC, Series 2018-1).

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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DBRS Morningstar Master U.S. ABS Surveillance (May 27, 2020) https://www.dbrsmorningstar.com/research/361480/dbrs-morningstar-master-us-abs-surveillance