DBRS Morningstar Finalizes Provisional Ratings on Avis Budget Rental Car Funding (AESOP) LLC, Series 2021-2

DBRS, Inc. (DBRS Morningstar) finalized the following provisional ratings on the medium-term notes (the Notes) issued by Avis Budget Rental Car Funding (AESOP) LLC, Series 2021-2:

-- Series 2021-2, Class A Notes at AAA (sf)
-- Series 2021-2, Class B Notes at A (high) (sf)
-- Series 2021-2, Class C Notes at BBB (sf)

The ratings are based on DBRS Morningstar’s review of the following analytical considerations:

(1) Transaction capital structure, proposed ratings, and form and sufficiency of available credit enhancement.
-- Credit enhancement, in the forms of subordination, overcollateralization, the letter of credit, and amounts held in the reserve account, supports the DBRS Morningstar stress case liquidation analysis in accordance with the DBRS Morningstar methodology “Rating U.S. Rental Car Securitizations.”
-- Liquid credit enhancement will be provided either in the form of a reserve account or a letter of credit sufficient to cover six months of interest on the Notes, consistent with the DBRS Morningstar criteria for this asset class.

(2) Credit enhancement in the transaction is dynamic, depending upon the composition of the vehicles in the fleet and certain market value tests.
-- The enhancement in the transaction depends upon whether the vehicles are program or non-program and whether the manufacturer is investment grade or below investment grade.
-- For non-program vehicles, the enhancement levels may increase as a result of tests: (A) a marked-to-market test, which compares the market value of the vehicles with the net book value; and (B) a disposition proceeds test, which compares the actual disposition proceeds of vehicles sold with the net book value of those vehicles.
-- If the credit enhancement required in the transaction increases and Avis Budget Car Rental, LLC (ABCR or Avis Budget) is unable to meet the increased enhancement levels, then an Amortization Event may occur, which will result in a rapid amortization of the Notes.

(3) The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested. For this transaction, the ratings address the payment of timely interest on a monthly basis and principal by the legal final maturity date. Further scenarios were analyzed using adjusted stresses on different fleet compositions and on medium- and heavy-duty trucks.

(4) The transaction parties’ capabilities to effectively manage rental car operations and disposition of the fleet to the extent necessary.
-- DBRS Morningstar has performed an operational review of Avis Budget and considers the entity to be a capable rental fleet operator and manager. Avis Budget has continued to take steps to reduce costs and optimize utilization, resulting in increased profitability on each rental car transaction.
-- Lord Securities is the backup administrator for this transaction, and defi AUTO, LLC is the disposition agent. DBRS Morningstar has not performed an operational review of defi AUTO, LLC.

(5) Collateral credit quality and residual value performance.
-- The top five manufacturers represented approximately 75% of the fleet net book value at the end of August 2021. Investment-grade manufacturers comprise over 74% of the manufacturer repurchase risk.
-- Manufacturer concentration limits mitigate exposure to lower-rated original equipment manufacturers and market value tests for non-program vehicles help mitigate residual value risk in the case of a fleet liquidation.

(6) The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios For Rated Sovereigns,” published on September 8, 2021. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020. The baseline macroeconomic scenarios reflect the view that, although the coronavirus pandemic remains a risk to the outlook, uncertainty around the macroeconomic effects of the pandemic has gradually receded. Current median forecasts considered in the baseline macroeconomic scenarios incorporate some risks associated with further outbreaks, but remain fairly positive on recovery prospects given expectations of continued fiscal and monetary policy support. The policy response to the coronavirus pandemic may nonetheless bring other risks to the forefront in coming months and years.

(7) Modifications and proposed amendments to the AESOP program (a) subsequent to the issuance of Series 2020-1, and (b) with respect to Series 2021-2, some of which won’t become effective until previously issues series are repaid. As part of its analysis, DBRS Morningstar reviewed such changes, including, among others, the eligibility of medium- and heavy-duty trucks, adjustment to certain concentration limits including those for manufacturers and non-perfected vehicles, increase in vehicle age limit, adjustment to the mark-to-market test, inclusion of Class D securities, and clarification that the AESOP lease constitutes a single indivisible lease.

(8) The legal structure and presence of legal opinions that address the treatment of the operating leases as true leases, the non-consolidation of the special-purpose vehicle with ABCR and its affiliates, that the trust has a valid first-priority security interest in the assets, and the consistency with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance.”

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 Rating U.S. Rental Car Securitizations (September 22, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

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

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