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Rating Action:

Moody's downgrades Hertz ratings, including the CFR to B3 from B2; outlook revised to negative

18 Mar 2020

New York, March 18, 2020 -- Moody's Investors Service, ("Moody's") downgraded the ratings of the Hertz Corporation (Hertz), including: 1) at Hertz, corporate family rating (CFR) to B3 from B2; first-lien secured debt to Ba3 from Ba2; second-lien secured debt to B2 from B1; unsecured notes to Caa1 from B3; and, the covenant-stripped unsecured notes to Caa2 from Caa1; and 2) at Hertz Holding Netherlands BV unsecured notes to Caa1 from B3. The speculative grade liquidity rating is unchanged at SGL-3. The outlook is negative.

RATINGS RATIONALE

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The car rental sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in Hertz's credit profile, including its exposure to Europe have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and the company remains vulnerable to the outbreak continuing to spread. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial credit implications of public health and safety. Today's action reflects the impact on Hertz of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

Hertz's revised ratings and negative outlook reflect the heightened vulnerability of the company to the impact of the coronavirus on the travel and leisure sectors, which are critical drivers of demand in the car rental industry. Moreover, the coronavirus impact comes at a time when Hertz is well along in the process of rebuilding its franchise following an extended period of underinvestment in critical fleet management processes as well as accounting and control systems. The company has been making steady progress as reflected in the improvement in its earnings, returns on assets and customer satisfaction measures.

Even with the improvement, further progress was expected but that trajectory will now be reversed by the corona-related downturn in car rental demand and by the potentially prolonged slowdown in the economy. As a consequence, Hertz's pre-tax earnings (which was about breakeven in 2019 after sizable losses from 2016 through 2018) could erode significantly in 2020, and the ratio of EBIT-to-interest (which stood at 1.0x at year-end 2019) could fall materially below 1 times.

The negative outlook reflects the risk that weakness in demand will extend through and potentially beyond the critical seasonal travel season, and could be prolonged. The negative outlook also reflects Moody's view that accurately right-sizing the size of Hertz's fleet in line with lower demand will prove challenging over the near term. During this period the company will face the risk of over capacity within the car rental sector, and the possibility of declines in vehicle residual values.

Hertz has adequate liquidity with: 1) a cash position of $865 million; 2) a revolving credit facility availability of $526 million; and, 3) a $4.1 billion US vehicle funding ABS facility. Moody's believes that Hertz has sufficient committed ABS facilities to fund expected fleet acquisitions over the coming year. In addition, Hertz has the ability to defer planned fleet purchases in the face of declining demand as well as sell vehicles out of its existing fleet. These actions can be done quickly in response to changes in the rental market. The overwhelming bulk of the company's $2.4 billion in maturing debt is the securitization debt which funded the fleet acquisitions and will be covered by normal liquidation of the fleet. Maturing corporate debt is around $20 million.

The ratings could be downgraded with any erosion in Hertz's liquidity position, particularly if Moody's anticipates that weakness in demand and operating performance increases the risk of a violation of covenants in its borrowing facilities. Hertz currently has ample cushion under its first-lien leverage covenant of 3.0 to 1, compared with a year-end 2019 measure of 0.5 to 1.

Given today's rating action, an upgrade is not expected in the near term. The outlook could be stabilized if Hertz demonstrates that it can adequately contend with the much more stressful operating environment, and clearly restore its track towards improved credit metrics. Such indicators would include: 1) quickly and effectively adjusting its fleet size in line with anticipated lower demand; 2) sustaining its improved customer satisfaction position; and 3) remaining on track to achieving pre-tax income well exceeding $100 million, and 4) an improved liquidity position.

The Hertz Corporation, headquartered in Estero, Florida, is one of the world's leading vehicle rental companies operating in both the on-airport and off-airport markets. The company's principal brands include: Hertz, Dollar Car Rental and Thrifty Car Rental.

The principal methodology used in this rating was Equipment and Transportation Rental Industry published in April 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Downgrades:

..Issuer: Hertz Corporation (The)

.... Probability of Default Rating, Downgraded to B3-PD from B2-PD

.... Corporate Family Rating, Downgraded to B3 from B2

....Senior Secured Bank Credit Facility, Downgraded to Ba3 (LGD2) from Ba2 (LGD1)

....Senior Secured Regular Bond/Debenture, Downgraded to B2 (LGD3) from B1 (LGD3)

....Senior Unsecured Regular Bond/Debenture, Downgraded to Caa1 (LGD5) from B3 (LGD4)

..Issuer: Hertz Corporation (The) (Old) debt assumed by Hertz Corporation (The)

....Senior Unsecured Regular Bond/Debenture, Downgraded to Caa2 (LGD6) from Caa1 (LGD6)

..Issuer: Hertz Holdings Netherlands BV

....Senior Unsecured Regular Bond/Debenture, Downgraded to Caa1 (LGD5) from B3 (LGD4)

Outlook Actions:

..Issuer: Hertz Corporation (The)

....Outlook, Changed To Negative From Stable

..Issuer: Hertz Holdings Netherlands BV

....Outlook, Changed To Negative From Stable

REGULATORY DISCLOSURES

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.

Bruce Clark
Senior Vice President
Corporate 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

Robert Jankowitz
MD - Corporate Finance
Corporate 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

No Related Data.
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