Avis Budget Car Rental (ABCR) is preparing to sponsor a $750 million securitization of revenue from a single lease financing a fleet of 511,181 vehicles used as rental cars.
The lessors are special purpose vehicles that own the automobiles, and the trust will repay the notes from a combination of the sponsor's lease payments, vehicle sales and proceeds from refinancings, according to a pre-sale report from Moody's Investors Service. The trust, Avis Budget Rental Car Funding (AESOP), 2024-2, will issue three classes of notes, all of which will have the same expected final payment, June 2029.
Moody's analysts say they expect to assign ratings of AAA, A2 and Baa3 to classes A, B and C, respectively.
The transaction's credit strength stems from Avis' effective fleet management, the collateral's importance to Avis, current rental car industry conditions and dynamic credit enhancement elements, Moody's analysts wrote. The rating agency noted that over-collateralization in the form of vehicles provides most of the deal's credit enhancement.
Also, there is a well-established, geographically diverse and highly liquid secondary market for the vehicles in the Avis fleet, Moody's notes. "The wholesale market for used cars generally supports sales of approximately 40 million units annually," analysts wrote.
Another aspect of the deal's credit enhancement is that over time it fluctuates, with changes in fleet composition, according to Moody's.
"Credit enhancement will rise if the proportion of non-program vehicles increases or if the proportion of program vehicles from non-investment grade manufacturers increases," analysts wrote.
This condition suggests strong residual values, but Moody's did note that only a few manufacturers account for the rental fleet. This concentration could expose the trust to losses should one or more of those manufacturers declare bankruptcy and not be able to satisfy their obligations under the repurchase and guaranteed depreciation agreements for program vehicles, Moody's said.
Another credit challenge is that the program's concentration limit of Tesla brand electric vehicles has increased to 25%, up from 15%. This will allow ABCR to add more Tesla EVs to it fleet—and future collateral pools for securitizations.
