Rating Action: Moody’s upgrades Avis Budget’s rental car ABSGlobal Credit Research – 28 Apr 2021New York, April 28, 2021 — Moody’s Investors Service, (“Moody’s”) has upgraded the ratings on 20 tranches of rental car asset-backed securities (ABS) issued by Avis Budget Rental Car Funding (AESOP) LLC (AESOP or the issuer). The issuer is an indirect subsidiary of the transaction sponsor and single lessee, Avis Budget Car Rental, LLC (ABCR, B2 negative). ABCR, a subsidiary of Avis Budget Group, Inc., is the owner and operator of Avis Rent A Car System, LLC (Avis), Budget Rent A Car System, Inc. (Budget), Zipcar, Inc. and Payless Car Rental, Inc. (Payless). AESOP is ABCR’s rental car securitization platform in the U.S. The collateral backing the notes is a fleet of vehicles and a single lease of the fleet to ABCR for use in its rental car business.COMPLETE RATING ACTIONSIssuer: Avis Budget Rental Car Funding (AESOP) LLC, Series 2016-1Series 2016-1 Class A, Upgraded to Aa1 (sf); previously on Jul 10, 2020 Downgraded to Aa2 (sf)Series 2016-1 Class B, Upgraded to Baa1 (sf); previously on Jul 10, 2020 Downgraded to Baa2 (sf)Issuer: Avis Budget Rental Car Funding (AESOP) LLC, Series 2016-2Series 2016-2 Class A, Upgraded to Aa1 (sf); previously on Jul 10, 2020 Downgraded to Aa2 (sf)Series 2016-2 Class B, Upgraded to Baa1 (sf); previously on Jul 10, 2020 Downgraded to Baa2 (sf)Issuer: Avis Budget Rental Car Funding (AESOP) LLC, Series 2017-1Series 2017-1 Fixed Rate Rental Car Asset Backed Notes, Class A, Upgraded to Aa1 (sf); previously on Jul 10, 2020 Downgraded to Aa2 (sf)Series 2017-1 Fixed Rate Rental Car Asset Backed Notes, Class C, Upgraded to Ba1 (sf); previously on Jul 10, 2020 Downgraded to Ba2 (sf)Issuer: Avis Budget Rental Car Funding (AESOP) LLC, Series 2017-2Series 2017-2 Fixed Rate Rental Car Asset Backed Notes, Class A, Upgraded to Aa1 (sf); previously on Jul 10, 2020 Downgraded to Aa2 (sf)Series 2017-2 Fixed Rate Rental Car Asset Backed Notes, Class C, Upgraded to Ba1 (sf); previously on Jul 10, 2020 Downgraded to Ba2 (sf)Issuer: Avis Budget Rental Car Funding (AESOP) LLC, Series 2018-1Series 2018-1 Fixed Rate Rental Car Asset Backed Notes, Class A, Upgraded to Aa1 (sf); previously on Jul 10, 2020 Downgraded to Aa2 (sf)Series 2018-1 Fixed Rate Rental Car Asset Backed Notes, Class C, Upgraded to Ba1 (sf); previously on Jul 10, 2020 Downgraded to Ba2 (sf)Issuer: Avis Budget Rental Car Funding (AESOP) LLC, Series 2018-2Series 2018-2 Fixed Rate Rental Car Asset Backed Notes, Class A, Upgraded to Aa1 (sf); previously on Jul 10, 2020 Downgraded to Aa2 (sf)Series 2018-2 Fixed Rate Rental Car Asset Backed Notes, Class C, Upgraded to Ba1 (sf); previously on Jul 10, 2020 Downgraded to Ba2 (sf)Issuer: Avis Budget Rental Car Funding (AESOP) LLC, Series 2019-1Series 2019-1 Fixed Rate Rental Car Asset Backed Notes, Class A, Upgraded to Aa1 (sf); previously on Jul 10, 2020 Downgraded to Aa2 (sf)Series 2019-1 Fixed Rate Rental Car Asset Backed Notes, Class C, Upgraded to Ba1 (sf); previously on Jul 10, 2020 Downgraded to Ba2 (sf)Issuer: Avis Budget Rental Car Funding (AESOP) LLC, Series 2019-2Series 2019-2 Rental Car Asset Backed Notes, Class A, Upgraded to Aa1 (sf); previously on Jul 10, 2020 Downgraded to Aa2 (sf)Series 2019-2 Rental Car Asset Backed Notes, Class C, Upgraded to Ba1 (sf); previously on Jul 10, 2020 Downgraded to Ba2 (sf)Issuer: Avis Budget Rental Car Funding (AESOP) LLC, Series 2019-3Series 2019-3 Rental Car Asset Backed Notes, Class A, Upgraded to Aa1 (sf); previously on Jul 10, 2020 Downgraded to Aa2 (sf)Series 2019-3 Rental Car Asset Backed Notes, Class C, Upgraded to Ba1 (sf); previously on Jul 10, 2020 Downgraded to Ba2 (sf)Issuer: Avis Budget Rental Car Funding (AESOP) LLC, Series 2020-1Series 2020-1 Rental Car Asset Backed Notes, Class A, Upgraded to Aa1 (sf); previously on Jul 10, 2020 Downgraded to Aa2 (sf)Series 2020-1 Rental Car Asset Backed Notes, Class C, Upgraded to Ba1 (sf); previously on Jul 10, 2020 Downgraded to Ba2 (sf)RATINGS RATIONALEMoody’s actions on the rental car ABS are prompted by (1) a decrease in our mean non-program haircut assumption upon sponsor default, to 19% from 25%, supported by the strength in used vehicle prices, and (2) consideration of the vastly improved rental car market conditions, particularly when evaluating sensitivity analysis related to the likelihood of lease acceptance.Moody’s also considered ABCR’s effective fleet management during the coronavirus-driven credit shock. Avis’ fleet utilization has continued to rise as a result of their controlled de-fleeting efforts and the recovery in rental car demand.According to J.D. Power, wholesale auction prices are now 17% higher than their previous peak back in August 2020, and at 29% above their level at the end of December 2020 as of the week ending April, 23 2021.[1]As of 31 March 2021, the notes benefitted from available credit enhancement consisting of subordination and over-collateralization, to protect investors against a meaningful decline in the value of the underlying vehicles (around 34%-37% credit enhancement behind the Class A notes, around 27%-29% enhancement behind the Class B notes and around 21%-23% enhancement behind the Class C notes).If ABCR were to file for bankruptcy, Moody’s continues to assume that the company would be more likely to reorganize under a Chapter 11 filing, as a reorganization would likely realize significantly more value as an ongoing business concern than a liquidation of its assets under a Chapter 7 filing. Moody’s view considers the strength of the ABCR brand (one of the three major car rental companies in North America) and the ongoing recovery of the rental car industry.Moody’s continues to assume a 75% probability that ABCR would affirm its lease payment obligations in the event of a Chapter 11 bankruptcy, informed by pandemic-driven events that affected the rental car market (such as the drastic and sudden decline in rental car demand and the resulting high lease payments for a vastly underutilized fleet). The assumed high likelihood of lease acceptance recognizes the strategic importance of the ABS financing platform to ABCR’s operation.The coronavirus pandemic has had a significant impact on economic activity. Although global economies have shown a remarkable degree of resilience to date and are returning to growth, the uneven effects on individual businesses, sectors and regions will continue throughout 2021 and will endure as a challenge to the world’s economies well beyond the end of the year. While persistent virus fears remain the main risk for a recovery in demand, the economy will recover faster if vaccines and further fiscal and monetary policy responses bring forward a normalization of activity. As a result, there is a heightened degree of uncertainty around our forecasts. Our analysis has considered the effect on the performance of corporate assets from a gradual and unbalanced recovery in US economic activity.We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.Below are the assumptions Moody’s applied in the analysis of this transaction:Risk of sponsor default: Moody’s assumed a 60% decrease in the probability of default (from Moody’s idealized default probability tables) implied by the B2 rating of the sponsor. Moody’s arrives at the 60% decrease assuming an 80% probability that ABCR would reorganize under a Chapter 11 bankruptcy and a 75% probability that ABCR would affirm its lease payment obligations in the event of a Chapter 11 bankruptcy.Disposal value of the fleet: Moody’s assumed the following haircuts to the net book value (NBV) of the vehicle fleet:Non-Program Haircut upon Sponsor Default — Mean: 19%Non-Program Haircut upon Sponsor Default — Standard Deviation: 6%Fixed Program Haircut upon Sponsor Default: 10%Additional Fixed Non-Program Haircut upon Manufacturer Default: 20%Fleet composition — Moody’s assumed the following fleet composition (based on NBV of vehicle fleet):Non-program Vehicles: 90%Program Vehicles: 10%Non-program Manufacturer Concentration (percentage, number of manufacturers, assumed rating): Aa/A Profile: 20%, 2, A3 Baa Profile: 60%, 3, Baa3 Ba/B Profile: 20%, 1, B1 Program Manufacturer Concentration (percentage, number of manufacturers, assumed rating): Aa/A Profile: 0%, 0, A3 Baa Profile: 80%, 2, Baa3 Ba/B Profile: 20%, 1, B1 Manufacturer Receivables: 0%; receivables distributed in the same proportion as the program fleet (Program Manufacturer Concentration and Manufacturer Receivables together should add up to 100%)Correlation: Moody’s applied the following correlation assumptions:Correlation among the sponsor and the vehicle manufacturers: 10%Correlation among all vehicle manufacturers: 25%Default risk horizon — Moody’s assumed the following default risk horizon: Sponsor: 5 years Manufacturers: 1 year A fixed set of time horizon assumptions, regardless of the remaining term of the transaction, is used when considering sponsor and manufacturer default probabilities and the expected loss of the related liabilities, which simplifies Moody’s modeling approach using a standard set of benchmark horizons.Detailed application of the assumptions are provided in the methodology.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was “Moody’s Global Approach to Rating Rental Fleet Securitizations” published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1232483. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Factors that would lead to an upgrade or downgrade of the ratings:UpMoody’s could upgrade the ratings of the notes as applicable if, among other things, (1) the credit quality of the lessee improves, (2) the credit quality of the pool of vehicles collateralizing the transaction strengthens, as reflected by a stronger mix of program and non-program vehicles and stronger credit quality of vehicle manufacturers.DownMoody’s could downgrade the ratings of the notes if, among other things, (1) the credit quality of the lessee weakens, (2) an increase in the likelihood of a sudden disposition of the underlying vehicles in another depressed used-vehicle market due to a continued resurgence or a second wave of COVID-19, (3) the credit quality of the pool of vehicles collateralizing the transaction weakens, as reflected by a weaker mix of program and non-program vehicles and weaker credit quality of vehicle manufacturers, (4) sharper than expected declines in vehicle prices of non-program vehicles owing to sustained weakness in the demand for used vehicles and prolonged disruptions to used-car sales channels, or (5) the tail periods become insufficient because US sales channels shut down again for a prolonged period and therefore vehicle disposition proceeds may be insufficient to repay the notes.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.In rating this transaction, Moody’s used a cash flow model to model cash flow stress scenarios to determine the extent to which investors would receive timely payments of interest and principal in the stress scenarios, given the transaction structure and collateral composition.Moody’s quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody’s weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. 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Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.[1] Used Market Update, J.D. Power, 23-Apr-2021Please 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.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. 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