Avis Budget is marketing the first 2018 series of bonds through its master trust backed by its rental fleet.

Avis Budget Rental Car Funding (AESOP) 2018-1 is a $400 million, senior-subordinate transaction, with a $328 million Class A tranche with preliminary triple-A ratings from Fitch Ratings, DBRS and Moody’s Investors Service. The senior notes will be supported by dynamically ranged credit enhancement between 28.4%-36.1%, based on the shifting overcollateralization for the fleet mix.

Avis Budget is also issuing $40 million in Class B notes and $32 million in Class C notes at closing; an additional subordinate tranche of Class D notes (undetermined size) may be issued without investor consent.

Bloomberg

All of the bonds carry an expected September 2023 maturity, matching the transaction’s five-year revolving period when Avis Budget will be rotating new vehicles into its fleet (the initial pool includes cars with an average age of 9.6 months).

The notes are pari passu with outstanding term and variable funding notes previously issued by the AESOP master trust since 2010. As of March 31, the current invested amount outstanding notes was $7.64 billion.

In rental car securitizations like those from Avis Budget and Hertz Corp., bonds are issued through a special purpose, bankruptcy remote vehicle that uses the proceeds to fund a fleet of rental cars and trucks. The vehicles are then leased back to Avis Budget and its fellow sponsoring subsidiaries Avis Dollar Thrifty Automotive Group, Budget Truck Rental, Zipcar, and Payless Car Rental, with the receivables used for note payments.

The notes are also supported by proceeds from repurchase agreements with original manufacturers when autos and trucks are replaced in the fleet. The resale value of the vehicles carry little risk for securitizers because of the agreements, although rental firms are exposed to the automakers’ financial strength.

Avis Budget and the sublessees pay taxes, titling, registration and insurance fees related to the vehicles and are responsible for servicing and maintaining the vehicles.

In the case of AESOP 2018-1, exposure is greatest among vehicles made by Ford Motor Co. (26.1%), Fiat Chrysler Automobiles (16.9%) and General Motors (16.7%). Ford and GM carry lower investment-grade ratings, and FCA was upgraded to a Moody’s upper speculative-grade rating of Ba2 in March.

Moody’s last month also switched the previously negative global auto industry outlook to stable for the next 12-18 months due to an improving business environment and growing consumer demand.

Bank of America Merrill Lynch is the lead structuring agent.

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