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

Form 10-Q

Commission 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. Forward-looking statements include information concerning our future financial performance, business strategy, projected plans and objectives. Statements preceded by, followed by or that otherwise include the words "believes", "expects", "anticipates", "intends", "projects", "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:

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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 current interest rates; and



•

changes in laws and regulations or the applications thereof, including changes in accounting standards or other laws that impact our business.

        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.

3

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 millions)

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 and 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 $120 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 2002 Annual Report on Form 10-K filed on March 10, 2003.

Changes in Accounting Policies

        Guarantees.    On January 1, 2003, the Company adopted Financial Accounting Standards Board 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 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.

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        Derivative Instruments and Hedging Activities.    On June 30, 2003, the Company adopted Statement of Financial Accounting Standards ("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 impact of adopting this standard was not material to the Company's results of operations or financial position.

        Financial Instruments with Characteristics of Both Liabilities and Equity.    On July 1, 2003, the Company adopted SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This standard addresses how certain financial instruments with characteristics of both liabilities and equity should be classified and measured. As a result, the Company reclassified its $362.6 million senior preferred membership interests ("PMI's") from the equity section of the Condensed Balance Sheets to the liability section as mandatorily redeemable preferred membership interests. The interest and dividend distributions on the PMI's for the three and nine months ended September 30, 2003 and 2002 were $2.9 million and $3.8 million and $7.2 million and $8.2 million, respectively. The Company is precluded from reclassifying prior period amounts, therefore, the third quarter 2003 amount is recorded as interest expense on the Condensed Statements of Income, while the 2002 amount and the amount for the six months ended June 30, 2003 is recorded as dividends.

2.     Debt

        During the nine months ended September 30, 2003, the Company made principal payments of $159.1 million and $200.0 million to the holders of its series 1999-2 Class A-2 medium-term notes and series 2001-1 Class A-1 medium-term notes, respectively. In July 2003, the Company purchased and retired the class B notes of its series 2002-2 which had a balance of $44.9 million. In August 2003, the Company issued $500 million of series 2003-1 medium-term notes bearing interest at a rate that is reset monthly at LIBOR plus 25 basis points for $230 million of such notes and LIBOR plus 36 basis points for $270 million of such notes.

        During the nine months ended September 30, 2003 the Company made drawdowns increasing the outstanding principal amount of its series 1999-3 variable funding notes by an aggregate of $432 million and made principal payments on its series 1999-3 variable funding notes in an aggregate amount of $529 million. As of September 30, 2003, the Company's series 1999-3 variable funding notes had a weighted average interest rate of approximately 1.32%. The series 1999-3 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 series 1999-3 variable funding notes will begin to amortize when the notes are not renewed.

3.     Preferred Membership Interests

        During the nine months ended September 30, 2003, the Company redeemed $135.5 million, $93.1 million, $72.6 million and $62.9 million of the series of PMI's relating to its series 1999-3 variable funding notes, series 1999-2 medium-term notes, series 2001-1 medium-term notes and series 2002-1 medium-term notes, respectively.

        During the nine months ended September 30, 2003, the Company issued five new series of PMI's relating to its: (i) series 2001-1 medium-term notes having an aggregate liquidation preference of approximately $88.5 million, (ii) series 2002-1 medium-term notes having an aggregate liquidation preference of approximately $76.7 million, (iii) series 2002-2 medium-term notes having an aggregate liquidation preference of approximately $57.3 million,

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(iv) series 2003-1 medium-term notes having an aggregate liquidation preference of approximately $45.6 million and (v) series 1999-3 variable funding notes having an aggregate liquidation preference of approximately $94.4 million. These PMI's were issued to an affiliate of Raven. The Company used a portion of the proceeds to purchase and retire the Class B notes of its series 2002-2 medium-term notes (discussed above).

4.     Note Receivable From Common Member

        On July 31, 2003, simultaneously with the retirement of the class B notes of the series 2002-2 notes, a $53.3 million demand note issued by VMS to Raven and contributed to the Company was cancelled, which reduced Raven's common membership interest in the Company by $53.3 million. On August 14, 2003, Raven increased its common membership interest in the Company by contributing $12.9 million demand note of VMS. The Company can call on this demand note from time to time in whole or in part at the Company's discretion with any calls reducing the available principal amount thereof. The demand note is not and will not be pledged as collateral to secure any series of the Company's notes.

*****

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

        The following discussion should be read in conjunction with our unaudited 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 and nine months ended September 30, 2003 decreased by $7,786 and $20,871, respectively, from the comparable periods in 2002. Such decreases resulted 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 three and nine months ended September 30, 2003 decreased by $5,715 and $10,308, respectively, as a result of decreases in the commercial paper rates and LIBOR (the rates at which our floating rate debt accrues interest). Accordingly, operating income for the three and nine months ended September 30, 2003 decreased by $1,856 and $10,027, respectively.

        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. Several of the estimates and assumptions that we are required to make pertain to matters that are inherently uncertain as they relate to future events. 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 that any change in these estimates or assumptions would have a material impact on our results of operations or financial condition.

Changes in Accounting Policies

        Guarantees.    On January 1, 2003, we adopted Financial Accounting Standards Board 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 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 our results of operations or financial position.

        Derivative Instruments and Hedging Activities.    On June 30, 2003, we adopted Statement of Financial Accounting Standards ("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 impact of adopting this standard was not material to our results of operations or financial position.

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        Financial Instruments with Characteristics of Both Liabilities and Equity.    On July 1, 2003, we adopted SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This standard addresses how certain financial instruments with characteristics of both liabilities and equity should be classified and measured. As a result we reclassified our $362.6 million PMI's from the equity section of the Condensed Balance Sheets to the liability section as mandatorily redeemable preferred membership interests. The interest and dividend distributions on the PMI's for the three and nine months ended September 30, 2003 and 2002 were $2.9 million and $3.8 million and $7.2 million and $8.2 million, respectively. We are precluded from reclassifying prior period amounts, therefore, the third quarter 2003 amount is recorded as interest expense on the Condensed Statement of Income, while the 2002 amount and the amount for the six months ended June 30, 2003 is recorded as dividends.

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 the nine months ended September 30, 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 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 the nine months ended September 30, 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 due to successful collection efforts and a reduction in the number of new bankruptcies. Management is not aware of any factors, which would negatively impact delinquencies for the remainder of 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 the nine months ended September 30, 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 allocated to the Fleet Receivable SUBI and do not include any other types of leases or fleet management receivables.

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(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 total billings decreased during the nine months ended September 30, 2003 as compared to the comparable period in 2002 due to lower losses from bankruptcies.

        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 the nine months ended September 30, 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 $603 during the nine months ended September 30, 2003 as compared to the comparable period in 2002 and the total number of sold vehicles decreased by 3% due to lower used car values resulting from higher volumes of used cars available in the market. The average loss per vehicle returned and sold increased $202 per unit for the same reason.

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 the nine months ended September 30, 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.

        Conversion of floating rate leases to fixed rate leases are at the discretion of the client. Management believes that the lack of conversions in the nine months ended September 30, 2003 is due to the clients' perception that floating rates will remain at, or decline from, current levels.

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Fleet Management Receivable Billing Experience

        The following table sets forth data for VMS' aggregate billings of fleet management receivables for the nine months ended September 30, 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 $63.5 million in the nine months ended September 30, 2003 from the comparable period in 2002 primarily due to an increase in fuel and maintenance billings.

Characteristics of Leases Allocated to Lease SUBI

        The following tables contain certain statistical information relating to the leases allocated to the Lease SUBI as of September 18, 2003 (the last Lease SUBI monthly reporting period cutoff date during the third quarter of 2003). 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 $74,307,492 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.

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Note: Dollar amounts are in whole amounts

As of September 18, 2003, the aggregate lease balance of the leases allocated to the Lease SUBI with the lessee having the largest aggregate lease balances was $130,244,170. The aggregate lease balance of the leases allocated to the Lease SUBI with the lessees having the five largest aggregate lease balances was $498,914,386 and the aggregate lease balance of the leases allocated to the Lease SUBI with the lessees having the ten largest aggregate lease balances was $800,420,756.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

        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 September 30, 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)

Disclosure Controls and Procedures.    Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this quarterly report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act.

(b)

Internal Control Over Financial Reporting.    There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 2.    Changes in Securities and Use of Proceeds

(c)

On July 31, 2003, the Company sold its (i) new Series 2001-1A Senior Preferred Membership Interests (the "Series 2001-1A PMIs"), (ii) new Series 2002-1A Senior Preferred Membership Interests (the "Series 2002-1A PMIs"), and (iii) new Series 2002-2A Senior Preferred Membership Interests (the "Series 2002-2A PMIs") having aggregate stated liquidation preferences of $88,536,603, $76,731,723 and $57,305,649, respectively, to Terrapin Funding LLC ("Terrapin") a subsidiary of Raven which financed its purchase of the Series 2001-1A PMIs, Series 2002-1A PMIs and Series 2002-2A PMIs by issuing privately its own asset backed notes and senior preferred membership interests. The net proceeds of the Series 2001-1A PMIs, Series 2002-1A PMIs, and Series 2002-2A PMIs were $88,536,603, $76,731,723 and $57,305,649, respectively, after deduction of fees and expenses. The sale of the Series 2001-1A PMIs, Series 2002-1A PMIs, and Series 2002-2A PMIs to Terrapin was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof as transactions by an issuer not involving a public offering.

On August 14, 2003, the Company sold its Series 2003-1 Senior Preferred Membership Interests (the "Series 2003-1 PMIs") having an aggregate stated liquidation preference of $45,551,409 to Terrapin which financed its purchase of the Series 2003-1 PMIs by issuing privately its own asset backed notes and senior preferred membership interests. The net proceeds of the Series 2003-1 PMIs were $45,551,409 after deduction of fees and expenses. The sale of the Series 2003-1PMIs to Terrapin was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof as a transaction by an issuer not involving a public offering.

On September 8, 2003, the Company sold its new Series 1999-3A Senior Preferred Membership Interests (the "Series 1999-3A PMIs") having an aggregate stated liquidation preference of $94,439,043 to Terrapin which financed its purchase of the Series 1999-3A PMIs by issuing privately its own asset backed notes and senior preferred membership interests. The net proceeds of the Series 1999-3A PMIs were $94,439,043 after deduction of fees and expenses. The sale of the Series 1999-3A PMIs to Terrapin was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof as a transaction by an issuer not involving a public offering.

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Item 6.    Exhibits and Reports on Form 8-K

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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.

Date: November 13, 2003

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Exhibit Index

QuickLinks

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II—OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K