New York, November 26, 2019 -- Moody's Investors Service (Moody's) has assigned a definitive
rating of Aaa (sf) to the Class A Notes of the Series 2019-3 Rental
Car Asset-Backed Notes issued by Hertz Vehicle Financing II LP
(HVF II, or the issuer). The Series 2019-3 Notes have
an expected maturity of approximately five years. HVF II is a special
purpose limited partnership and a wholly-owned indirect subsidiary
of The Hertz Corporation (Hertz; B2 corporate family rating and B2-PD
probability of default rating, with a stable outlook). HVF
II is Hertz's rental car securitization platform in the U.S.
Moody's also announced today that the issuance of the Series 2019-3
Notes, in and of itself and at this time, will not result
in a reduction, withdrawal, or placement under review for
possible downgrade of any of the ratings currently assigned to the outstanding
series of notes issued by the Issuer.
The complete rating action is as follows:
Issuer: Hertz Vehicle Financing II LP, Series 2019-3
Series 2019-3 Class A Notes, Definitive Rating Assigned Aaa
(sf)
RATINGS RATIONALE
The rating on the Series 2019-3 notes is based on (1) the collateral
in the form of rental fleet vehicles, which Hertz uses in its rental
car business under brand names Hertz and Dollar Thrifty, (2) the
credit quality of Hertz as lessee and payment guarantor, (3) the
available credit enhancement, which consists of subordination and
over-collateralization, (4) the legal structure, (5)
minimum liquidity in the form of cash and/or a letter of credit,
and (6) the track-record, experience and expertise of Hertz
as the servicer of the rental fleet and the administrator for HVF II.
The Series 2019-3 Class A Notes benefit from subordination provided
by the Class B, C and D Notes, which represent approximately
27.93% of the outstanding balance of the Series 2019-3
Notes. Additionally, the Series 2019-3 Notes benefit
from overcollateralization and a letter of credit sized to cover at least
six months of interest on the notes, plus 50 basis points of expenses.
As in prior issuances, the transaction documents stipulate that
the required credit enhancement for the Series 2019-3 Class A Notes,
sized as a percentage of the total assets, is a blended rate,
which is a function of Moody's ratings on the vehicle manufacturers and
defined asset categories as described below:
» 9.00% for eligible program vehicle and receivable
amount from investment grade manufacturers (any manufacturer that has
Moody's long-term rating or senior unsecured rating or long-term
corporate family rating (together, "Relevant Moody's Ratings") of
at least "Baa3" and any manufacturer that does not have a Relevant Moody's
Rating and has a senior unsecured debt rating from Moody's of at least
"Ba1")
» 11.00% for eligible program vehicle amount from non-investment
grade manufacturers
» 13.25% for eligible non-program vehicle amount
from investment grade manufacturers
» 17.45% for eligible non-program vehicle amount
from non-investment grade manufacturers
» 11.00% for eligible program receivable amount from
non-investment grade (high) manufacturers (any manufacturer that
(i) is not an investment grade manufacturer and (ii) has a Relevant Moody's
Rating of at least "Ba3")
» 100.00% for eligible program receivable amount from
non-investment grade (low) manufacturers (any manufacturer that
has a Relevant Moody's Rating of less than "Ba3")
» 0.00% for cash amount
Consequently, the actual required amount of credit enhancement fluctuates
based on the mix of vehicles and receivables in the securitized fleet.
Furthermore, the transaction documents dictate that the total enhancement
should include a minimum portion which is liquid (in cash and/or letter
of credit), sized as a percentage of the aggregate Class A / B /
C / D principal amount, net of cash.
Below are the assumptions Moody's applied in the analysis of this transaction:
Risk of sponsor default: Moody's assumed a 72% decrease in
the probability of default (from Moody's idealized default probability
tables) implied by the B2 rating of the sponsor. This reflects
Moody's view that, in the event of a bankruptcy, Hertz would
be more likely to reorganize under a Chapter 11 bankruptcy filing,
as it would likely realize more value as an ongoing business concern than
it would if it were to liquidate its assets under a Chapter 7 filing.
Furthermore, given the sponsor's competitive position within the
industry and the size of its securitized fleet relative to its overall
fleet, the sponsor is likely to affirm its lease payment obligations
in order to retain the use of the fleet and stay in business. We
arrive at the 72% decrease assuming an 80% probability Hertz
would reorganize under a Chapter 11 bankruptcy and a 90% probability
Hertz would affirm its lease payment obligations in the event of Chapter
11.
Disposal value of the fleet: Moody's assumed the following haircuts
to the net book value (NBV) of the vehicle fleet:
Non-Program Haircut upon Sponsor Default: Mean: 19%
Non-Program Haircut upon Sponsor Default: Standard Deviation:
6%
Fixed Program Haircut upon Sponsor Default: 10%
Additional Fixed Non-Program Haircut upon Manufacturer Default:
20%
Fleet composition -- Moody's assumed the following fleet
composition (based on NBV of vehicle fleet):
Non-program Vehicles: 90%
Program Vehicles: 10%
Non-program Manufacturer Concentration (percentage, number
of manufacturers, assumed rating):
Aa/A Profile: 40%, 2, A3
Baa Profile: 40%, 2, Baa3
Ba/B Profile: 20%, 1, Ba3
Program Manufacturer Concentration (percentage, number of manufacturers,
assumed rating):
Aa/A Profile: 0%, 0, A3
Baa Profile: 70%, 1, Baa3
Ba/B Profile: 30%, 1, Ba3
Manufacturer Receivables: 12%; receivables distributed
in the same proportion as the program fleet (Program Manufacturer Concentration
and Manufacturer Receivables together should add up to 100%)
Correlation: Moody's applied the following correlation assumptions:
Correlation among the sponsor and the vehicle manufacturers: 10%
Correlation among all vehicle manufacturers: 25%
Default risk horizon -- Moody's assumed the following default
risk horizon:
Sponsor: 5 years
Manufacturers: 1 year
A fixed set of time horizon assumptions, regardless of the remaining
term of the transaction, is used when considering sponsor and manufacturer
default probabilities and the expected loss of the related liabilities,
which simplifies Moody's modeling approach using a standard set of benchmark
horizons.
Detailed application of the assumptions are provided in the methodology.
The principal methodology used in this rating was "Moody's Global Approach
to Rating Rental Fleet Securitizations" published in March 2019.
Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Factors that would lead to a downgrade of the rating:
Moody's could downgrade the ratings of the Series 2019-3 Class
A Notes if (1) the likelihood of the transaction's sponsor defaulting
on its lease payments were to increase, (2) assumptions of the credit
quality of the pool of vehicles collateralizing the transaction were to
weaken, as reflected by a weaker mix of program and non-program
vehicles and weaker credit quality of vehicle manufacturers, or
(3) the residual values of the non-program vehicles collateralizing
the transaction were to decrease materially relative to Moody's expectations.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
In rating this transaction, Moody's CDOROM™ is used to model
the expected loss for each tranche. Moody's CDOROM™
is a Monte Carlo simulation tool which takes each underlying asset default
probability as input. Each underlying asset default behavior is
then modeled individually with a standard multi-factor model incorporating
both intra- and inter-industry correlation. The correlation
structure is based on a Gaussian copula. Each Monte Carlo scenario
simulates defaults and if applicable, recovery rates, to derive
losses on a portfolio. For a synthetic transaction, the model
then allocates losses to the tranches in reverse order of priority to
derive the loss on the tranches. By repeating this process and
averaging over the number of simulations, Moody's can derive
the expected loss on the tranches. For a cash transaction,
the portfolio loss, or default, distribution produced by Moody's
CDOROM™ may be input into a separate cash flow model in accordance
with its priority of payment to determine each tranche's expected
loss.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Arti Mattu
Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Giyora Eiger
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
