Avis Rent a Car is seeking to issue up to $300 million in securitized notes, in one of its smallest securitizations of its rental car leasing contracts in years through the Avis Budget Rental Car Funding (AESOP) master trust.
The AESOP 2016-1 issuance, which will be marketed as an institutional Rule 144A transaction, is divided among three tranches that are each provisionally rated by DBRS: a $238.9 million Class A notes slice with an ‘AAA’ rating; $34.3 million in Class B notes rated ‘A (high)’; and $26.9 million in Class C notes carrying a ‘BBB’ rating.
The rate for each class of notes in AESOP 2016-1 is to be determined. The size of the deal is lower than Avis’ pair of 2015 lease fixed-rate securitization deals. AESOP 2015-1 from January 2015 totaled $650 million, with a 2.52% rate on the $438 million AAA-rated stack, while AESOP 2015-2 was for $550 million with a 2.5% rate on the $535.4 million AAA notes.
(Avis also issued a $825 million variable-rate AESOP 2015-3 transaction in November 2015, which was an annual renewal of asset-backed conduit financing of its Series 2010-6 notes).
AESOP 2016-1 is the 15th collateralization of its rental fleets, which as of January has $7.4 million in outstanding principal. The latest transaction is the smallest for Avis since its $212.1 million AESOP 2011-3 securitization.
The credit support for the Class A notes will be backed by the Class B and C notes, as well as liquidity sources (cash or letter of credit, underwritten by JPMorgan) and overcollaterization on the transaction.
As in its most recent deals in 2015, the notes will include leases from its Avis, Budget, Zipcar and Payless car rental systems.
Avis’ rental fleets have traditionally been concentrated in General Motors vehicles, with up to 75% of its vehicles from GM in the late 2000s, according to DBRS. But Avis has diversified its vehicle lineup by expanding relationships to 15 manufacturers, and now has its highest fleet concentration in Ford vehicles (34.3%). GM is second at 16.7, followed by Chrysler (12%), Toyota (6.7%) and Hyundai (6.6%).
Avis has reduced its exposure to lower-rated manufacturers (with vehicles that hold less residual value) to improve the fleet’s net book value. As of January 2016, 76% of the fleet value is concentrated in the top five global auto manufacturers, and 82% of the manufacturer repurchase risk from investment-grade automakers. Avis reports 99.4% of the vehicles were model year 2014 or later.
For 2015, parent firm Avis Budget Group had $8.5 billion in vehicle rental revenue, up 5% on a year-over-year basis, and had $5 billion in available liquidity (including cash/cash equivalent of $452 million).