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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-Q

Registration File No. 333-40708

Chesapeake Funding LLC
(Exact name of Registrant as specified in its charter)

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ý    No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

Chesapeake Funding LLC

Index

FORWARD-LOOKING STATEMENTS

        Forward-looking statements in our public filings or other public statements are subject to known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements.

        Statements preceded by, followed by or that otherwise include the words "believes", "expects", "anticipates", "intends", "project", "estimates", "plans", "may increase", "may fluctuate" and similar expressions or future or conditional verbs such as "will", "should", "would", "may" and "could" are generally forward-looking in nature and not historical facts. You should understand that the following important factors and assumptions could affect our future results and could cause actual results to differ materially from those expressed in such forward-looking statements:

•

changes in general economic and business conditions and the impact thereof on the vehicle leasing business or the lessees of our vehicles;



•

the effects of changes in interest rates; and



•

changes in laws and regulations, including changes in accounting standards.

        Other factors and assumptions not identified above were also involved in the derivation of these forward-looking statements, and the failure of such other assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict accurately and are generally beyond our control.

        You should consider the areas of risk described above in connection with any forward-looking statements that may be made by us. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required by law. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Chesapeake Funding LLC

CONDENSED STATEMENTS OF INCOME

(In thousands)

See Notes to Condensed Financial Statements.

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Chesapeake Funding LLC

CONDENSED BALANCE SHEETS

(In thousands)

See Notes to Condensed Financial Statements.

4

Chesapeake Funding LLC

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

See Notes to Condensed Financial Statements.

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Chesapeake Funding LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unless otherwise noted, all amounts are in thousands)

1. Summary of Significant Accounting Policies

Basis of Presentation

        Chesapeake Funding LLC ("Chesapeake" or "the Company") is a special purpose limited liability company, which was organized on June 24, 1999 as Greyhound Funding LLC under the laws of the State of Delaware. On April 25, 2002, the Company's name was changed to Chesapeake Funding LLC. The sole common member of Chesapeake is Raven Funding LLC ("Raven"), which itself is a special purpose limited liability company established under the laws of the State of Delaware. The sole member of Raven is PHH Vehicle Management Services, LLC ("VMS"), a limited liability company from its date of organization to March 1, 2001, a wholly-owned subsidiary of Avis Group Holdings, Inc ("Avis"). On March 1, 2001, Avis was acquired by PHH Corporation. VMS became a wholly-owned subsidiary of PHH Corporation, which is a wholly-owned subsidiary of Cendant Corporation. All assets and liabilities were recorded by the Company at fair value as of March 1, 2001. No significant adjustments were made by the Company.

        Chesapeake was formed for the purpose of issuing indebtedness, issuing preferred membership interests, acquiring and holding a special unit of beneficial interest in certain leases (the "Lease SUBI") and acquiring and holding a portion of a special unit of beneficial interest in certain fleet management receivables (the "Fleet Receivable SUBI") owned by D.L. Peterson Trust ("DLPT"). The Lease SUBI is a beneficial ownership interest in the leases, vehicles and paid-in-advance vehicles owned by DLPT ("SUBI Assets"). DLPT is a Delaware statutory trust established by VMS in order to administer the titling and to act as lessor of the vehicles in connection with the financing and transfer of vehicles subject to leases. Chesapeake owns a certificate representing the Lease SUBI (the "Lease SUBI Certificate") and a certificate representing an interest in the Fleet Receivable SUBI in an amount up to $80 million (the "Fleet Receivable SUBI Certificate"). VMS acts as servicer of the assets held by DLPT including the assets allocated to the Lease SUBI and the Fleet Receivable SUBI. In its role as servicer, VMS will maintain all property, equipment and employees required to perform the servicing activities. The Fleet Receivable SUBI Certificate and the Lease SUBI Certificate were issued by DLPT to Raven, and were then contributed to Chesapeake by Raven.

        In management's opinion the accompanying unaudited Condensed Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results reported. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. In addition, management is required to make estimates and assumptions that affect the amounts reported and related disclosures. Estimates by their nature, are based on judgments and available information. Accordingly, actual results could differ from those estimates.

        The Condensed Financial Statements should be read in conjunction with the Company's Annual Report on Form 10-K filed on March 10, 2003.

Change in Accounting Policy

        On January 1, 2003, the Company adopted FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," in its entirety. Such interpretation elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees issued. It also clarifies that a guarantor is required to

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recognize, at the inception of any guarantee issued or modified after December 31, 2002, a liability for the fair value of the obligation undertaken in issuing the guarantee. The impact of adopting this Interpretation was not material to the Company's results of operations or financial position.

Recently Issued Accounting Pronouncement

        On April 30, 2003, the Financial Accounting Standards Board issued SFAS No. 149. "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." Such standard amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The provisions of this statement are generally effective for contracts entered into or modified after June 30, 2003. The Company is in the process of assessing the impact of adopting this standard on its results of operations and financial position.

2. Debt

        During first quarter 2003, the Company made principal payments of approximately $120 million to the holders of its Series 1999-2 Class A-2 notes. During first quarter 2003, the Company increased the outstanding principal amount of its variable funding notes by approximately $140 million. As of March 31, 2003, the Company's variable funding notes had a weighted average interest rate of approximately 1.58%. The variable funding notes are renewable annually for an indefinite period if the Company and the multi-seller commercial paper conduits agree to do so. The principal amount of the variable funding notes will begin to amortize when the notes are not renewed.

3. Preferred Membership Interests

        In January 2003, the Company redeemed $38.7 million of its senior preferred membership interests in cash.

*****

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussions should be read in conjunction with our Condensed Financial Statements and accompanying Notes thereto included elsewhere herein and with our 2002 Annual Report on Form 10-K filed with the Commission on March 10, 2003 Unless otherwise noted, all dollar amounts are in thousands.

        We are a limited purpose entity formed in 1999. Our activities are limited to acquiring and holding an investment in the Lease SUBI (which is a special unit of beneficial interest in certain leases and vehicles owned by DLPT) and a portion of the Fleet Receivable SUBI (which is a special unit of beneficial interest in certain fleet management receivables owned by DLPT), issuing indebtedness and preferred membership interests to finance such investment and engaging in other activities that are related or incidental to the foregoing and necessary, convenient or advisable to accomplish the foregoing. We do not conduct operating activities.

        Income from investment in related party special unit of beneficial interest in leases for the three months ended March 31, 2003 decreased by $3,284 thousand. Such decrease results primarily from declines in the floating rate indices on which interest billings under the leases allocated to the Lease SUBI are based. Interest expense for the first quarter 2003 increased by $265 thousand as a result of decreases in the commercial paper rates and LIBOR at which our floating rate debt accrues interest. Accordingly, operating income decreased by $3,402 thousand.

        The principal source of our revenue is payments received on the Lease SUBI held by us. Set forth below is certain historical data with respect to delinquency experience, loss and recovery experience, residual value loss experience, conversions of floating rate leases to fixed rate leases, and fleet management billing experience, in each case for leases and fleet management receivables that are of the same type as those allocated to the Lease SUBI and the Fleet Receivable SUBI.

        In presenting our financial statements in conformity with generally accepted accounting principles, we are required to make estimates and assumptions that affect the amounts reported therein. We do not believe the estimates and assumptions that we are required to make are particularly subjective or complex and as such we do not believe any change in these estimates or assumptions would have a material impact on our financial statements.

Delinquency Experience

        The following table sets forth delinquency data with respect to aggregate billings of lease payments for all of VMS' leases and fleet management receivables for first quarter 2003 and 2002. These leases and fleet management receivables are of the same type as the leases allocated to the Lease SUBI and

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the fleet management receivables allocated to the Fleet Receivable SUBI and do not include any other types of leases or fleet management receivables.

(1)

The period of delinquency is based on the number of days payments are contractually past due.

(2)

Represents an average of the ratios, expressed as a percentage, for each monthly billing period within the applicable period of the aggregate billings for all leases and all fleet management receivables that were delinquent for the applicable number of days as of the last day of that monthly billing period to the sum of the aggregate billings for all leases and fleet management receivables that were unpaid as of the last day of the preceding monthly billing period and the aggregate amount billed for all leases and fleet management receivables during that monthly period.

        Total delinquencies for first quarter 2003 remained below 5% of total billings, which is consistent with the performance of the portfolio over the last several years. Delinquencies of 30-59 days decreased for first quarter 2003 to 0.48% from 1.83% for first quarter 2002. This decrease was the result of collection efforts which resulted in a 73.6% decrease in 30-59 days delinquencies. Delinquencies of 60 days or more for first quarter 2003 decreased slightly to 2.83% of total billings from 3.03% for first quarter 2002. While delinquencies continue to be impacted by the continuing effects of Chapter 11 bankruptcy filings of several customers, non-bankruptcy delinquent receivables of 60 days or more declined for the comparable period. Management is not aware of any factors which would negatively impact delinquencies for 2003 beyond historical levels.

Loss and Recovery Experience

        The following table sets forth loss and recovery data with respect to VMS' leases and fleet management receivables for first quarter 2003 and 2002. These leases and fleet management receivables are of the same type as the leases allocated to the Lease SUBI and the fleet management receivables

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allocated to the Fleet Receivable SUBI and do not include any other types of leases or fleet management receivables.

(1)

Based on the sum of all principal amounts outstanding under the leases, including, in the case of closed-end leases, the stated residual values of the related leased vehicles.

(2)

Gross losses includes losses on fleet management receivables.

(3)

Recoveries are net of legal fees.

        Net losses as a percentage of ending dollar amount of leases remained the same for first quarter 2003 compared to first quarter 2002. Net losses as a percentage of total billings increased from .01% for first quarter 2002 to .02% for first quarter 2003 due to higher losses from bankruptcies in the first quarter of 2003.

        Gross losses with respect to bankrupt obligors generally are not recognized by VMS until it receives payment upon the confirmation of the plan of reorganization of the bankrupt obligor and receives any terminal rental adjustment payments that may be applied to satisfy outstanding obligations with respect to fleet management receivables. Losses are charged against previously established reserves. Reserve adequacy for the purposes of VMS' financial statements is determined at the time of a client's bankruptcy filing and any necessary charge is recorded to the income statement at that time.

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Residual Value Loss Experience

        The following table sets forth residual value loss performance data for VMS' closed-end leases for first quarter 2003 and 2002. These closed-end leases are of the same type as the closed-end leases allocated to the Lease SUBI and do not include any other types of closed-end leases.

(1)

The ratio of the number of vehicles sold during the period to the number of vehicles scheduled to terminate during the period, expressed as a percentage.

(2)

Includes fees received and expenses incurred to dispose of vehicles and certain amounts received after the sale and disposition of the vehicles. Total loss does not include any effect from fair value adjustments resulting from purchase accounting.

(3)

Per vehicle dollar amounts are not in thousands.

(4)

Represents the ratio of total losses on vehicles sold during the period to the stated residual values of those vehicles, expressed as a percentage.

        Total residual value losses increased $66 thousand to $151 thousand and the total number of sold vehicles increased 31.1%. The increase in units sold resulted from clients retaining vehicles beyond their original lease term in 2002 which were sold in first quarter 2003. The average loss per vehicle returned and sold in first quarter 2003 increased 36.4% from the comparable period in 2002 to $146 per unit.

Conversions of Floating Rate Leases to Fixed Rate Leases

        The following table sets forth data with respect to conversions of VMS' floating rate leases to fixed rate leases during first quarter 2003 and 2002.

(1)

Based on the sum of all principal amounts outstanding under the leases.

(2)

Based on the sum of all principal amounts outstanding under the leases, including, in the case of closed-end leases, the stated residual values of the related leased vehicles.

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        There were no conversions of floating rate leases to fixed rate leases during first quarter 2003 compared with $1.8 million in first quarter 2002.

Fleet Management Receivable Billing Experience

        The following table sets forth data for VMS' aggregate billings of fleet management receivables for first quarter 2003 and 2002. These fleet management receivables are of the same type as the fleet management receivables allocated to the Fleet Receivable SUBI and do not include any other types of fleet management receivables.

        Aggregate fleet management receivable billings increased to approximately $247.3 million during first quarter 2003 compared to approximately $210.4 million during first quarter 2002. The primary factor for this increase was higher service card billings resulting from an increase in fuel and maintenance billings.

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Characteristics of Leases Allocated to Lease SUBI

        The following table contains certain statistical information relating to the leases allocated to the Lease SUBI as of March 20, 2003 (the last Lease SUBI monthly reporting period cutoff date during the period). The following information does not include vehicles ordered at the request of lessees party to a master lease agreement allocated to the Lease SUBI, having an aggregate cost of $114,289,485 as of that date because such vehicles were not yet subject to a lease. For the purposes of preparing the following tables, we assumed the original term of each lease to be the period over which the related vehicle is scheduled to be depreciated.

Composition of Leases

Note: Dollar amounts are in whole amounts

        As of March 20, 2003, the aggregate lease balance of the leases allocated to the Lease SUBI with the lessee having the largest aggregate lease balances was $136,340,336. The aggregate lease balance of the leases allocated to the Lease SUBI with the lessees having the five largest aggregate lease balances was $517,268,639 and the aggregate lease balance of the leases allocated to the Lease SUBI with the lessees having the ten largest aggregate lease balances was $835,852,996.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

        We use interest rate caps to manage and reduce the interest rate risk related specifically to our asset-backed debt. Interest rate risk is our only market exposure. We do not engage in trading, market-making, or other speculative activities in the derivatives markets. We assess our interest rate risk based on changes in the interest rates utilizing a sensitivity analysis, which measures the potential loss in earnings, fair values and cash flows based on a hypothetical 10% change (increase and decrease) in our asset-backed debt and interest rate caps. We used March 31, 2003 interest rates to perform a sensitivity analysis. We have determined, through such analyses, that the impact of a 10% change in interest rates on our earnings, fair values and cash flows would not be material.

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Item 4. Controls and Procedures

(a)

Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to our company required to be included in our reports filed or submitted under the Exchange Act.



(b)

Changes in Internal Controls. Since the Evaluation Date, there have not been any significant changes in our internal controls or in other factors that could significantly affect such controls.

PART II—OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a)

Exhibits

        See Exhibit Index

(b)

Reports on Form 8-K

        None.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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CERTIFICATIONS

I, George J. Kilroy, certify that:

1)

I have reviewed this quarterly report on Form 10-Q of Chesapeake Funding LLC;



2)

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;



3)

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;



4)

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;



b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date");



c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5)

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):



a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and



b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and



6)

The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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I, Neil J. Cashen, certify that:

1)

I have reviewed this quarterly report on Form 10-Q of Chesapeake Funding LLC;



2)

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;



3)

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;



4)

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;



b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date");



c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5)

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):



a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and



b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and



6)

The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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Exhibit Index

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QuickLinks

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures About Market Risks
Item 4. Controls and Procedures
PART II—OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K