What are the exceptions to Budget's lack of significant concentrations of credit risk with any individual counterparty or groups of counterparties at December 31, 2024 or 2023?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
g is provided. We mitigate counterparty credit risk associated with our derivative contracts by monitoring the amount for which we are at risk with each counterparty, periodically evaluating counterparty creditworthiness and financial position, and where possible, dispersing our risk among multiple counterparties.
There were no significant concentrations of credit risk with any individual counterparty or groups of counterparties at December 31, 2024 or 2023, other than (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 were disposed but for which we have not yet received payment from the manufacturers (see Note 2 – Summary of Significant Accounting Policies), (ii) receivables from Realogy and Wyndham related to certain contingent, income tax and other corporate liabilities assumed by Realogy and Wyndham in connection with their disposition, and (iii) risks related to leases which have been assumed by Realogy but of which we are a guarantor. Concentrations of credit risk associated with trade receivables are considered minimal due to our diverse customer base. We do not normally require collateral or other security to support credit sales.
Fair Value
Derivative instruments and hedging activities
As described above, derivative assets and liabilities consist principally of currency exchange contracts, interest rate swaps, interest rate caps and commodity contracts.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, while Budget generally does not have significant concentrations of credit risk, there are a few exceptions. As of December 31, 2024 and 2023, these exceptions include risks associated with repurchase and guaranteed depreciation agreements with car manufacturers, both domestic and foreign. This primarily concerns receivables for program cars that have been sold but for which Budget has not yet received payment from the manufacturers.
Additionally, Budget faces credit risk related to Realogy and Wyndham. This includes receivables of $39 million and $24 million, respectively, tied to certain contingent, income tax, and other corporate liabilities that Realogy and Wyndham assumed in connection with their disposition.
Finally, Budget faces risks related to leases assumed by Realogy for which Budget remains a guarantor. For a prospective franchisee, this indicates that Budget's financial stability is partly dependent on these external agreements and the financial health of these counterparties. It is important to note that Budget considers concentrations of credit risk associated with trade receivables as minimal due to their diverse customer base.