Hertz Vehicle Financing III LLC (HVF III), Hertz's rental car ABS master trust facility, has issued the Series 2025-3 and Series 2025-4 transactions which respectively have expected final payment dates in three and five years.
The Series 2025-3 and 2025-4 notes represent Hertz Corp.'s 16th and 17th term ABS transactions from the HVF III platform and offer both senior and subordinate rated securities. The trustee is the Bank of New York Mellon Trust Company.
Moody's Ratings says that the collateral backing the notes comprises a fleet of vehicles and a single operating lease of the fleet to Hertz for use in its rental car business, as well as certain manufacturer and incentive rebate receivables owed to the issuer by the original equipment manufacturers. The lessor, HVF III, owns the vehicles.
The issuer will repay the notes with funds from Hertz's lease payments, the sales of vehicles, refinancing proceeds from Hertz, or amounts paid by original equipment manufacturers under eligible incentive rebates.
According to Morningstar DBRS, the total amount raised in the two transactions increased from $500 million when it provisionally rated the deals last month to $685 million.
Moody's notes that the transactions' key credit strengths include the Hertz brand's strength, the strategic importance of the collateral to Hertz, the highly liquid collateral backing the notes, and the dynamic credit enhancement. Key credit challenges include the non-investment grade lessee, the normalizing rental car industry conditions that will continue to reduce earnings supporting the lease, the vehicles' market value risk, and the residual value volatility associated with electric vehicles.
The transactions' dynamic credit enhancement is primarily in the form of over-collateralization and subordination, Moody's says. The required credit enhancement level will fluctuate over time with changes in the fleet composition. The required credit enhancement will rise if the proportion of non-program vehicles increases, or if the proportion of program vehicles from lower credit quality OEMs increases. Dynamic credit enhancement mitigates the negative impact of a weaker fleet composition on the credit quality of the notes. The transactions also include a feature that requires either an increase in credit enhancement or an acceleration of note principal payments, if the market values of the fleet deteriorate below the net book values, Moody's says.
The concentration limit for EVs manufactured by Tesla is 10% for the two transactions, lower than the series 2025-1 and 2025-2, and there is no limit on EVs from other manufacturers, Moody's says.
Morningstar DBRS assigned an AAA final rating to the Series 2025-03 Class A notes, totaling $256.875 million; A to the Class B notes totaling $37.5 million; BBB to the Class C notes worth $50.625 million; and BB to the Class D notes worth $30 million.
The ratings agency assigned an AAA final rating to the Series 2025-04 Class A notes, totaling $212.35 million; A to the Class B notes totaling $31 million; BBB to the Class C notes totaling $41.85 million; and BB to the Class D notes totaling $24.8 million.
Moody's assigned an AAA definitive rating to the Series 2025-03 Class A notes; A1 to the Class B notes; BAA3 to the Class C notes; and BA2 to the Class D notes. It assigned an AAA final rating to the Series 2025-04 Class A notes; A1 to the Class B notes; BAA3 to the Class C notes; and BA2 to the Class D notes.
