What concentrations of credit risk did Budget have as of December 31, 2024?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
we make various commitments to purchase other goods or services from specific suppliers, including those related to marketing, advertising, computer services and capital expenditures. As of December 31, 2024, we had approximately $145 million of purchase obligations, which extend through 2029.
Concentrations
Concentrations of credit risk at December 31, 2024, include (i) risks related to our repurchase and guaranteed depreciation agreements with domestic and foreign car manufacturers and primarily with respect to receivables for program cars that have been disposed, but for which we have not yet received payment from the manufacturers and (ii) risks related to Realogy and Wyndham, including receivables of $39 million and $24 million, respectively, related to certain contingent, income tax and other corporate liabilities assumed by Realogy and Wyndham in connection with their disposition.
Asset Retirement Obligations
We maintain a liability for asset retirement obligations. An asset retirement obligation is a legal obligation to perform certain activities in connection with the retirement, disposal or abandonment of assets. Our asset retirement obligations, which are measured at discounted fair values, are primarily related to the removal of underground fuel storage tanks at our rental facilities. The Consolidated Balance Sheets include liabilities for asset retirement obligations of $25 million and $27 million at December 31, 2024 and 2023, respectively.
Standard Guarantees/Indomnification
In the ordinary course of business, we enter into numerous agreements that contain standard guarantees and indemnities whereby we agree to indemnify another party, among other things, for performance under contracts and any breaches of representations and warranties thereunder. In addition, many of these parties are also indemnified against any third-party claim resulting from the transaction that is contemplated in the underlying agreement.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, as of December 31, 2024, Budget had several concentrations of credit risk. These included risks related to repurchase and guaranteed depreciation agreements with both domestic and foreign car manufacturers. This primarily concerns receivables for program cars that have been sold, but for which Budget had not yet received payment from the manufacturers. These agreements are common in the car rental industry, as they allow Budget to manage fleet costs and risks associated with vehicle depreciation. However, they also expose Budget to the risk that manufacturers may default on their repurchase obligations.
Additionally, Budget faced credit risk related to receivables from Realogy and Wyndham, amounting to $39 million and $24 million, respectively. These receivables stem from contingent, income tax, and other corporate liabilities that Realogy and Wyndham assumed in connection with their disposition. This indicates that Budget's financial health is partially tied to the financial stability and payment behavior of these entities. The FDD also mentions risks related to leases assumed by Realogy but guaranteed by Budget, adding another layer of financial interdependence.
Budget mitigates counterparty credit risk associated with derivative contracts by monitoring the amount for which they are at risk with each counterparty. They also periodically evaluate counterparty creditworthiness and financial position, and where possible, dispersing their risk among multiple counterparties. The FDD states that concentrations of credit risk associated with trade receivables are considered minimal due to Budget's diverse customer base, and they do not normally require collateral or other security to support credit sales.