It is heard that Budget Group, which has publicly stated it could be forced to file for bankruptcy protection should its restructuring fall through, has been investigating the logistics of a securitization in bankruptcy.

This follows market rumors that ANC Rental Corp. is considering a securitization in bankruptcy. The company obtained bankruptcy court approval to securitize in May.

Interestingly, in rental car ABS, bankruptcy is generally an early amortization trigger; even with court approval, actually structuring a deal that rating agencies and investors are comfortable with could be challenging.

Basically, rental car ABS is structured so that the liquidation value of the fleet would pay full principal on the notes issued against it. The actual rental payment through to the trust is a payment from the company for use of the fleet, as opposed to a literal isolation of the individual rental payments coming off the fleet. The rental payment from the company covers interest and carry cost of the transaction, and monthly depreciation on the fleet.

"Once a rental car company enters bankruptcy, it has the benefit of the automatic stay, which gives the company a period, generally 60 days, to accept or reject the lease payment," said Tom Reese of Fitch Ratings. "Conceivably, once a company is in bankruptcy, it no longer has the benefit of an automatic stay period, and therefore the transaction would have immediate access to the fleet following a defined early amortization event."

Reese added that, "While a [bankrupt] company can no longer hide behind the stay provision, there is still a question about its ability to maintain and manage the fleet appropriately."

Budget missed a $18.25 million senior debt payment on April 1, and a $1.5 million interest payment on convertible subordinated notes on April 29. Budget's grace periods expired May 1 and June 1, respectively, and both are currently in default.

Cited from a May 15 filing with the Securities & Exchange Commission, "Such a payment default under the Senior Notes or the convertible subordinated notes, unless waived by a sufficient number of holders, triggers defaults under the working capital facility and, in turn, the agreements related to the Company's Medium Term Notes."

The company has not publicly announced the status of any concessions or waivers. However, in May, Budget indicated that it had made progress toward securing private equity financing, as part of its overall restructuring.

As was reported in April, if Budget were to file, the event would cause early amortizations of its outstanding securitizations. Via Team Fleet Financing Corp., Budget has brought nine visible rental car securitizations to market since 1997 for approximately $3 billion, most recently tapping the market in November through Deutsche Bank Securities.

As of press time, Budget Group Treasurer Kathy Abbott did not return a call seeking comment

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