March 3, 2017 / 2:12 PM / 5 months ago

Fitch Expects to Rate Avis Budget Rental Funding (AESOP) LLC, Series 2017-1; Presale Issued

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Avis Budget Rental Funding LLC, Series 2017-1 here NEW YORK, March 03 (Fitch) Fitch Ratings expects to assign the following ratings and Outlooks to the notes issued by Avis Budget Rental Funding (AESOP) LLC, 2017-1 (AESOP 2017-1): --$401,080,000 class A notes 'AAAsf'; Outlook Stable; --$58,650,000 class B notes 'Asf'; Outlook Stable; --$40,270,000 class C notes 'BBBsf'; Outlook Stable. KEY RATING DRIVERS High Fleet Diversity: AESOP is deemed diverse due to the high degree of original equipment manufacturers (OEM), model, segment and geographic diversification in the fleet. Concentration limits, based on a number of characteristics, help mitigate the risk of OEM defaults and losses. Healthy OEM Financials: OEMs with program vehicle (PV) concentrations in the fleet have all improved their financial positions in recent years, putting themselves in position to meet program agreement obligations. Ford ('BBB'/Outlook Stable) is the largest OEM in the total fleet (30.3%) with PV-specific vehicles (17.4%). Stable Depreciation and Residual Realization: Depreciation has been relatively stable largely due to consistent aging within the fleet, which typically ranges from seven to nine months. Vehicle disposition losses have been minimal for PV, and risk vehicles have consistently shown residual gains relative to net book value at sale. Sufficient Enhancement: Credit enhancement (CE) for the notes is composed of subordination, letter(s) of credit and dynamic overcollateralization, which will shift according to the fleet mix. CE levels for each class of notes are sufficient to cover Fitch's maximum and minimum expected loss levels for each class under the respective ratings. Structural Feature Mitigate Risk: Market value tests, amortization triggers and events of default all mitigate risks stemming from ongoing vehicle value volatility and weakness, ensuring parity between vehicle net book values and market values. Adequate Servicer and Fleet Manager: Avis Budget Car Rental, LLC is deemed an adequate servicer and administrator as evidenced by its fleet management abilities and securitization performance to date. Fiserv is backup disposition agent, while Lord Securities is the backup administrator, both well experienced in their respective roles. Integrity of Legal Structure: The legal structure of AESOP provides that a bankruptcy of Avis Budget Group, Inc. or its subsidiaries would not impair the timeliness of payments on the securities. RATING SENSITIVITIES Fitch's rating sensitivity analysis focuses on three scenarios involving potentially extreme market disruptions that would force the agency to redefine its stress assumptions. The first examines the effect of moving Fitch's bankruptcy/liquidation timing scenario to eight months at 'AAAsf' with subsequent increases to each rating level. The second considers the effect of moving the disposition stresses to the higher end of the range at each rating level for a diverse fleet. For example, at 'AAAsf', the stress would move from 24% to 28%. Finally, the last example shows the impact of both stresses on the structure. The purpose of these stresses is to demonstrate the potential rating impact on a transaction if one or a combination of these scenarios occurs. Fitch determined ratings by applying expected loss levels for various rating categories until the enhancement proposed exceeds the expected loss levels from the sensitivity. The expected loss levels outlined in the tables below are representative of expected levels at each rating level. Fitch ran sensitivities on the structure according to the scenarios described above. For all sensitivity scenarios, the class A notes show little sensitivity to changes in the assumptions, with a potential downgrade only occurring under the combined scenario. The class B notes could see a one category downgrade under the combined scenario but would otherwise remain at the current rating category. Class C notes, as the most subordinate class, are the most sensitive to changes in losses and could see a one notch downgrade in the disposition loss scenario and a category downgrade to 'BB' in the combined scenario. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10 Fitch was provided with third-party due diligence information from Deloitte & Touche LLP in the form of their Independent Accountants Report on Applying Agreed-Upon Procedures pertaining to each series. The third-party due diligence focused on a review of the procedures and related data for approximately 365 vehicles in the pool for each series. Fitch considered this information in its analysis, but the findings had no impact on Fitch's analysis. REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under 'Related Research' below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions,' dated March 2, 2017. Contacts: Primary Analyst Timothy McNally Associate Director +1-212-908-0870 Fitch Ratings, Inc. 33 Whitehall Street, New York, NY 10004 Secondary Analyst Hylton Heard Director +1-212-908-0214 Committee Chairperson Du Trieu Senior Director +1-312-368-2091 Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016) here Global Rating Criteria for Rental Fleet ABS (pub. 31 Aug 2016) here Global Structured Finance Rating Criteria (pub. 27 Jun 2016) here Related Research Avis Budget Rental Funding (AESOP) LLC, Series 2017-1 -- Appendix here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1020003 ABS Due Diligence Form 15E 1 here ?pr_id=1020003&flm_nm=15e_1020003_1.pdf Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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