Approved Hertz agreement preserves cash flow for ABS notes

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Last week’s proposed rent-relief agreement between Hertz Corp. and investors in its rental car asset-backed securities will alleviate “some performance uncertainty” on the senior notes dependent on residuals from fleet lease payments and vehicle sales, according to a report from Moody’s Investors Service.

In a report published Friday, Moody’s said the agreement for Hertz to remit proceeds from vehicle sales as well as about one-third of its contractual lease payments would result in “bolstering the credit enhancement supporting the senior rental car ABS and alleviating some performance uncertainty for the senior notes.”

The proposed combination of lease payments and required vehicle sales proceeds would will boost credit enhancement to around 45% by December, compared to 34% in June, according to Moody's.

Under the agreement with lenders and creditors, which was approved by the court Friday, Hertz will make an estimated $650 million in master-lease payments on fleet of vehicles and turning over $3.9 billion of car-sale proceeds through year-end.

Under the accord, Hertz will for the rest of the year halt its effort to cancel some of the nearly 500,000 leases on the cars the company rents out to consumers. A separate Hertz entity owns the vehicles, which the company leases back under a contract that gives lenders strong collateral rights.

The agreement was announced by a Hertz bankruptcy attorney in court on Friday, and approved by U.S. Bankruptcy Judge Mary Walrath.

Hertz has agreed to sell 182,000 cars over the next few months. The deal also requires Hertz to make $650 million in lease payments. The reduction in the $11 billion in vehicle debt is tied to the auto sales, Hertz attorney Tom Lauria told the court.

The deal “took a little bit of good luck,” he said, referring to a boost in the used car market that began in the last few months.

Hertz and its vehicle lenders had been fighting about how much the company owed under a lease contract that governs the fleet. Lawyer Marshall Huebner said the lenders he represents believe they were owed $1.8 billion in regular payments through Dec. 31 under that lease. Hertz and lower-ranking creditors have maintained the amount was far less.

“I do like to see peace break out,” Walrath said in approving the settlement.

(Bloomberg News contributed to this report).

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