Avis 2009 Annual Report Download - page 95

Table of Contents
Avis Budget Rental Car Funding (AESOP) LLC . Avis Budget Rental Car Funding, an unconsolidated bankruptcy remote qualifying special
purpose limited liability company, issues private placement notes to investors as well as to bank conduit facilities. Avis Budget Rental Car
Funding then uses the proceeds from 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, 2009 and 2008. The Company also recorded an asset within assets under
vehicle programs on its Consolidated Balance Sheets at December 31, 2009 and 2008, 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 Sheets. 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 $5.1 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. 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 and fixed rate notes with a weighted average interest rate of
2% as of December 31, 2009 and 2008. (Due to hedging transactions to reduce the Company’s exposure to interest rate movements, the
Company’s weighted average effective interest rate related to the debt of Avis Budget Rental Car Funding was approximately 7% as of
December 31, 2009.)
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 $291 million of corresponding
assets and are floating rate notes with a weighted average interest rate of 5% and 4% as of December 31, 2009 and 2008, 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 $83 million and $354 million with accumulated amortization of $42 million and $211 million classified within vehicles, net on the
Company’s Consolidated Balance Sheets as of December 31, 2009 and 2008, respectively. Interest paid as part of capital lease obligations
was $4 million and $8 million during 2009 and 2008, respectively.
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