Avis 2011 Annual Report Download - page 81

F-27
16. Debt Under Vehicle Programs and Borrowing Arrangements
Debt under vehicle programs (including related party debt due to Avis Budget Rental Car Funding (AESOP) LLC (“Avis
Budget Rental Car Funding”)) consisted of:
As of December 31,
2011
2010
Debt due to Avis Budget Rental Car Funding (a) $ 4,574 $ 3,987
Budget Truck financing
(b) 188 244
Capital leases (c) 348 -
Other (d) 454 284
$ 5,564 $ 4,515
__________
(a) The increase reflects increased borrowing within U.S. operations due to an increase in the size of the Company’s U.S. car rental
fleet.
(b) The decrease reflects principal payments on borrowings.
(c) The increase reflects the inclusion of capital lease arrangements related to Avis Europe’s vehicle rental fleet.
(d) The increase reflects an increase in borrowings related to an increase in the size of our international fleet, primarily as a result of
the Avis Europe Acquisition.
Avis Budget Rental Car Funding (AESOP) LLC. Avis Budget Rental Car Funding, an unconsolidated bankruptcy remote
qualifying special purpose limited liability company, issues privately placed notes to investors as well as to banks and
bank-sponsored conduit entities. Avis Budget Rental Car Funding 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.
AESOP Leasing is required to use the proceeds of such loans to acquire or finance the acquisition of vehicles used in the
Company’s rental car operations. By issuing debt through the Avis Budget Rental Car Funding program, Avis Budget
pays a lower rate of interest than if it had issued debt directly to third parties. Avis Budget Rental Car Funding is not
consolidated, as the Company is not the “primary beneficiary” of Avis Budget Rental Car Funding. The Company
determined that it is not the primary beneficiary because the Company does not have the obligation to absorb the
potential losses or receive the benefits of Avis Budget Rental Car Funding’s activities since the Company’s only
significant source of variability in the earnings, losses or cash flows of Avis Budget Rental Car Funding is exposure to
its own creditworthiness, due to its loan from Avis Budget Rental Car Funding. Because Avis Budget Rental Car
Funding is not consolidated, AESOP Leasing’s loan obligations to Avis Budget Rental Car Funding are reflected as
related party debt on the Company’s Consolidated Balance Sheets. The Company also has an asset within Assets under
vehicle programs on its Consolidated Balance Sheets which represents securities 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 has the ability to direct its activities, an
obligation to absorb a majority of its expected losses and the right to receive the benefits of AESOP Leasing’s activities.
AESOP Leasing’s vehicles and related assets, which as of December 31, 2011, approximate $6.3 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 are presented on the Company’s
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 Investments in Avis
Budget Rental Car Funding (AESOP) LLC– related party) are restricted. Such assets 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, AESOP Leasing may pay dividends from excess cash. The
creditors of AESOP Leasing and Avis Budget Rental Car Funding have no recourse to the general credit of the
Company. The Company periodically provides Avis Budget Rental Car Funding with non-contractually required
support, in the form of equity and loans, to serve as additional collateral for the debt issued by Avis Budget Rental Car
Funding. 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 financial statements. Borrowings under the Avis Budget Rental Car Funding program primarily
represent fixed rate notes and had a weighted average interest rate of 4% and 3% as of December 31, 2011 and 2010,