As further described below, the rating is primarily based on (1) collateral in the form trucks owned by the Issuer and leased to BTR for BTR's truck rental operations (about 17,884 trucks representing over 73.7% of BTR's total rental truck fleet as of July 31, 2012), (2) the presence of ABCR as guarantor of BTR's obligations as lessee under an operating lease with the Issuer, as lessor, (3) minimum liquidity in the form of cash or letters of credit, (4) the legal structure and (5) the capabilities and the expertise of ABCR and BTR.
The complete rating action is as follows:
Issuer: Centre Point Funding, LLC, Series 2012-2
Series 2012-2, Assigned (P)Baa2 (sf)
RATINGS RATIONALE
The Notes are principally secured by a first priority perfected security interest in a discrete portion of the trucks owned by the Issuer. The Issuer purchased the trucks with proceeds from the Issuer's various note issuances and/or capital contributions by Budget. Under an operating lease, the Issuer (as lessor), leases its trucks to BTR (as lessee). BTR may in the future sublease the trucks to Budget, Avis and certain of its other affiliates but will always remain fully liable under the lease. BTR, as lessee, is responsible for lease payments covering, among other things, interest on the Notes and depreciation on the trucks. These obligations are guaranteed by ABCR.
For Series 2012-2, the total enhancement (trucks, cash and/or letter of credit) is initially 72.75% of note outstanding and will decline over time based on truck mix and aging. There is also a total enhancement floor of $15 million to address over concentration risk when the pool winds down at the later life of the transaction. Included in the enhancement is liquidity enhancement (cash and/or letter of credit) initially not less than 18.92% of the note outstanding and will decline over time with a liquidity floor equal to the larger of 1) $3.2 million and 2) 10% of note outstanding. BTR, as lessee, is required to either purchase (at its option), or otherwise dispose of, the securitized trucks once they reach a certain age (96 months for gas trucks and 120 months for diesel trucks from the time of invoice). As such, if BTR, as lessee, and ABCR, as guarantor, do not default on their respective obligations, the Notes are expected to be paid off in full from the scheduled truck disposition proceeds and the monthly depreciation payment (in the form of lease payments) by month 93, the expected final maturity date.
Truck disposition proceeds are to be applied to pay down the Notes to the extent necessary to make sure that the total required credit enhancement remains in formula. If the transaction is not in an amortization event, any excess proceeds before the 72nd month of the transaction, will be released to the Issuer to buy new trucks, refinance its other outstanding series of notes or released to Budget.
The rapid amortization period starts with month 72 if the transaction has not hit an amortization event, when all truck disposition proceeds, monthly depreciation payments and other principal collections, after the Issuer's expenses, will be applied to reduce Note principal until the Notes are fully paid. In addition, under the transaction documentation, the indenture trustee will be automatically directed to carry out a limited forced liquidation of trucks to generate enough disposition proceeds to pay-off the bondholders at par if the bonds have not been fully paid by the expected final maturity date (approximately 93 months after closing) and the issuer's 30 day cure period has elapsed.
V-SCORE AND LOSS SENSITIVITY
Moody's V Score. The V Score for this U.S. Rental Truck ABS transaction is Medium and indicates "Average" structure complexity and uncertainty about critical assumptions. Moody's ratings analysis makes assumptions about key factors, such as (1) the likelihood of default of ABCR (as the guarantor of BTR's lessee obligations) and the truck manufacturers, (2) the composition of the pool's truck mix over time and (3) the realizable value of the portion of the fleet backing the ABS should fleet liquidation be necessary. The last assumption in particular has relatively high potential variability for the following reasons. Disposition of trucks occurs irregularly (trucks usually have a longer use (i.e., older age) prior to their disposition than do non-commercial vehicles). Fewer re-sale value observation points exist for trucks than there are for non-commercial vehicles. And, like non-commercial vehicles, data is unavailable on truck values in a large scale stressed liquidation. To address this variability, we make assumptions we believe to be conservative about appropriate recovery value haircuts.
Moody's V Scores provide a relative assessment of the quality of available credit information and the potential variability around the various inputs to a rating determination. The V Score ranks transactions by the potential for significant rating changes owing to uncertainty around the assumptions due to data quality, historical performance, the level of disclosure, transaction complexity, the modeling and the transaction governance that underlie the ratings. V Scores apply to the entire transaction (rather than individual tranches).
Moody's Parameter Sensitivities. For this exercise, we analyzed stress scenarios assessing the potential model-indicated ratings impact if (a) the current B1 rating of ABCR was to immediately decline to B3 and Caa1 and (b) the assumed modeled haircuts to estimated depreciated truck market values were increased by 5%, 10% and 15%. Haircuts are expressed as a percentage of the estimated depreciated market value of the truck collateral. We model potential truck collateral liquidation value by estimating depreciated market value and then applying haircuts and we use triangular distributions for those haircuts. The stresses increase the base case triangular distribution haircuts by the following percentage points: 5%, 10% and 15%. For example, since the triangular distribution haircuts in the base case are (10%, 22%, 33%), and this is increased by 5 percentage points, then the resulting stressed haircut would be a triangular distribution of (15%, 27%, 38%).
Using such assumptions, the Baa2 initial model-indicated rating for the Series 2012-2 Notes might change as follows: (a) with ABCR rated B1, the Baa2 initial note rating would remain at Baa2 under the base recovery but change to Baa3, Ba1 and Ba2 with the each lower recovery assumption; (b) with ABCR rated B3, the Baa2 initial note rating would remain at Baa2 under the base recovery but change to Ba1, Ba2 and B1 with the each lower recovery assumption; (c) with ABCR rated Caa1, the Baa2 initial note rating would change to Baa3 under the base recovery and change to Ba1, Ba3 and B1 with the each lower recovery assumption.
Parameter Sensitivities are not intended to measure how the rating of the security might migrate over time, rather they are designed to provide a quantitative calculation of how the initial rating might change if key input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged. Parameter Sensitivities only reflect the ratings impact of each scenario from a quantitative/model-indicated standpoint. Qualitative factors are also taken into consideration in the ratings process, so the actual ratings that would be assigned in each case could vary from the information presented in the Parameter Sensitivity analysis.
PRINCIPAL RATING METHODOLOGY
The key factors in Moody's rating analysis include the probability of default of ABCR (as guarantor of BTR's obligations as lessee), the likelihood of a bankruptcy or default by the manufacturers of the trucks backing the ABS, and the recovery rate on the rental trucks in case ABCR defaults. Monte Carlo simulation modeling was used to assess the impact on bondholders of these variables.
The default probability of ABCR is simulated based on its probability of default rating and Moody's idealized default rates. In addition, we stress the rating of ABCR to provide a limited degree of de-linkage of the rated ABS from ABCR's rating.
Under the terms of the simulation, in cases where ABCR does not default it is assumed that bondholders are repaid in full and no liquidation of the portion of the Issuer's rental truck fleet backing the ABS is necessary.
In cases where ABCR does default, we always assume that the portion of the Issuer's fleet backing the ABS must be liquidated in order to repay the bondholders. In those cases, the default probability of the related manufacturers must also be simulated. The default probability of manufacturers, whose trucks are included in the collateral, is derived from their respective ratings if they are rated by Moodys, otherwise the default probability is derived by assuming the unrated manufacturer is rated B2. Upon liquidation, the trucks are assumed to be sold in the open market. The truck pool is static although trucks may drop out due to reaching age limitations or due to casualty. Indeed, based solely on the trucks' aging, the truck mix by manufacturer, truck type and model year changes moderately over time. To account for this, we tested both the initial mix and the projected mix (the latter being derived from the scheduled disposition of trucks due to age). The projected mix was chosen since thereafter the mix roughly stabilizes until late in the deal term.
The depreciated market value of a truck at time of liquidation before any haircuts are applied is estimated using market depreciation data from Black Book for each model of truck by manufacturer in the collateral pool. In making this calculation we give credit to the fact that the original purchase prices for the trucks were below MSRP by assuming the discount to MSRP actually achieved for the vehicles in the securitized pool. We also assume a delay in sale of nine months and therefore net out an additional nine months of depreciation. This nine month delay in truck liquidation contemplates potential legal challenges to obtaining control of the trucks and even more significant, the potential difficulties of marshaling and selling the pool's trucks given a market with limited market liquidity.
The base liquidation value of sold trucks is determined by applying a base haircut to the estimated depreciated market value. The base haircut is simulated using a triangular distribution (i.e., minimum, mode, maximum) with values of (10%, 22%, 33%). We also simulate the manufacturer's status: non-bankrupt or bankrupt. An additional 10% haircut is applied to the base liquidation value of the trucks from any manufacturer whose simulated status is bankrupt. We believe such moderate haircut is appropriate for trucks from bankrupt manufacturers given our view that the manufacturer's bankruptcy status has only a moderate linkage to truck resale value.
Finally, unlike rental car ABS, none of the trucks in the pool benefit from program agreements with the manufacturers (that is, agreements where the manufacturer guarantees either the minimum depreciation or the resale value of the trucks upon disposition) and as such no modeling of such feature is necessary.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.
Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments in this transaction.
Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.
Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.
Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Jiang XuAsst Vice President - Analyst Structured Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Michael McDermitt VP - Senior Credit Officer Structured Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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