Avis 2008 Annual Report Download - page 99

its note issuances to make loans to a wholly-owned subsidiary of the Company, AESOP Leasing LP (“AESOP Leasing”) on a continuing
basis. By issuing debt through the AESOP program, Avis Budget has been paying a lower rate of interest than if the Company had issued
debt directly to third parties. AESOP Leasing is required to use these proceeds to acquire or finance the acquisition of vehicles used in the
Company’s rental car operations. Avis Budget Rental Car Funding is not consolidated, as its interests, including its equity interest, are not
considered variable interests and the Company is not the primary beneficiary of Avis Budget Rental Car Funding. As a result, AESOP
Leasing’s obligation to Avis Budget Rental Car Funding is reflected as related party debt on the Company’s Consolidated Balance Sheets as
of December 31, 2008 and 2007. The Company also recorded an asset within assets under vehicle programs on its Consolidated Balance
Sheets at December 31, 2008 and 2007, which represented the equity issued to the Company by Avis Budget Rental Car Funding. AESOP
Leasing is consolidated, as the Company is the primary beneficiary of AESOP Leasing; as a result, the vehicles purchased by AESOP
Leasing remain on the Company’s Consolidated Balance Sheet. The Company determined it is the primary beneficiary of AESOP Leasing,
as it absorbs a majority of its expected losses and residual returns. This determination was made by developing multiple scenarios with
different sets of assumptions and determining the probability weighted cash flows that result. AESOP Leasing’s vehicles and related assets,
which approximate $6.6 billion and many of which are subject to manufacturer repurchase and guaranteed depreciation agreements,
collateralize the debt issued by Avis Budget Rental Car Funding. The assets and liabilities of AESOP Leasing and their carrying values are
presented on our consolidated balance sheets within Assets under vehicle programs and Liabilities under vehicle programs, respectively. The
assets of AESOP Leasing, included within Assets under vehicle programs (excluding the Investment in Avis Budget Rental Car Funding
(AESOP) LLC– related party) are restricted. They may be used only to repay the respective AESOP Leasing liabilities, included within
Liabilities under vehicle programs; and to purchase new vehicles, although if certain collateral coverage requirements are met excess cash
may be dividended to the Company. The creditors of AESOP Leasing have no recourse to the general credit of the Company. In April 2006,
the Company made a capital contribution into Avis Budget Rental Car Funding of $1.6 billion to retire vehicle debt and provide funding for
future vehicle purchases, which was not contractually required. The Company also finances vehicles through other variable interest entities
and partnerships, which are consolidated and whose assets and liabilities are included within Assets under vehicle programs and Liabilities
under vehicle programs, respectively. The requirements of these entities include maintaining sufficient collateral levels and other covenants.
The business activities of Avis Budget Rental Car Funding are limited primarily to issuing indebtedness and using the proceeds thereof to
make loans to AESOP Leasing for the purpose of acquiring or financing the acquisition of vehicles to be leased to the Company’s rental car
subsidiaries and pledging its assets to secure the indebtedness. Because Avis Budget Rental Car Funding is not consolidated by the
Company, its results of operations and cash flows are not reflected within the Company’s Consolidated Financial Statements. Borrowings
under the Avis Budget Rental Car Funding program primarily represent floating rate notes with a weighted average interest rate of 2% and
5% as of December 31, 2008 and 2007, respectively.
Truck financing
. The Budget Truck Funding program consists of debt facilities established by the Company to finance the acquisition of the
Budget Truck rental fleet. The borrowings under the Budget Truck Funding program are collateralized by $334 million of corresponding
assets and are floating rate notes with a weighted average interest rate of 4% and 5% as of December 31, 2008 and 2007, respectively. The
Company has also obtained a portion of its truck rental fleet under capital lease arrangements for which there are corresponding gross assets
of $354 million and $361 million with accumulated amortization of $211 million and $154 million classified within vehicles, net on the
Company’s Consolidated Balance Sheets as of December 31, 2008 and 2007, respectively. Interest paid as part of capital lease obligations
was $8 million and $10 million during 2008 and 2007, respectively.
Other . Borrowings under the Company’s other vehicle rental programs primarily represent amounts issued under financing facilities that
provide for borrowings to support the acquisition of vehicles used in the Company’s international vehicle rental operations and loans to
support the acquisition of certain vehicles for
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