This week the securitization market tees up another deal with dual series offered to investors, this time from sponsor Budget Car Rental. The Avis Budget Rental Car Funding, series 2023-7 and series 2023-8 will issue notes from a revolving pool of primarily non-program risk vehicles from various manufacturers.
Both transactions will issue three classes of notes, says a pre-sale report from Fitch Ratings, and deal characteristics are almost identical across both series.
The senior 2023-7 notes have minimum credit enhancement of 30.72%, not too far off from the senior 2023-8 notes, which have 30.78% of minimum credit enhancement.
Ratings analysts at Moody's Investors Service also assessed the deal, and found that the Series 2023-7 notes have modeled coupons of 6.18%, 6.96% and 7.93% on classes A, B and C, respectively. For Series 2023-8, the modeled coupons were a little higher, at 6.24%, 7.07%, and 8.04%, respectively.
The series 2023-7 notes have a legal final maturity of August 2028, the rating agencies said, while the series 2023-8s finally come due in February 2030.
Other structural features are stable across both deals, Fitch said, including original equipment manufacturer (OEM) limits. Light and heavy-duty trucks were included in the collateral pool. Avis also has a different minimum depreciation rate of non-program vehicles (NPVs) to account for market value and an increase to the vehicle age limit.
The collateral pool is highly liquid, which enhances the positive credit attributes of the notes, according to Moody's. Overcollateralization takes the form of vehicles, and there is a highly liquid, well-established, and geographically distributed secondary market. The car rental industry has put pressure on car company profits, but used vehicle values are still elevated. Now that air travel volumes have stabilized, car rental rates are similarly stable and remain high.
Moody's called attention to a number of challenges to the deal as well. For one, the sponsor is non-investment grade. Should the sponsor default, the issuer might need to dispose of the vehicles to make required note payments, which would expose the transaction to the risk of lower vehicle residual values. Another concern, according to Moody's, is the pool's 25% concentration limit for Tesla and other electric vehicles makes, up from 15% from Series 2023-5. The higher concentration of EVs increases risks to the transaction a bit, because residual values on those types of cars are still unknown.
As for ratings, Fitch says it will assign 'AAA' to the class A notes; 'A' to the class B notes; and 'BBB' to the class C notes. Moody's intends to assign 'Aaa' to the class A notes; 'A2' to the class B notes; and 'Baa3' to the class C notes on both series of notes.
