Hertz Corp. is marketing two as-yet unsized offerings of notes backed by its auto rental fleet, according to rating agency reports.
Hertz Vehicle Financing II LP, Series 2016-3 will issue four tranches of notes with an expected maturity of July 2019 and the Series 2016-4 will issue four tranches with a final maturity of 20201; the senior tranche of each deal benefits from 47% credit enhancement and has a preliminary doublt--A ratings from Fitch Ratings and Moody's Investors Service.
Deutsche Bank is the lead arranger.
In rental car securitizations, the sponsor - a rental car company - leases the vehicles from a special purpose vehicle which owns them. The ABS is paid off by the combination of lease payments from the sponsor, sale of vehicles, and/or refinancing proceeds. "Lease payments from Hertz will cover depreciation charges, all interest and carrying charges of the appropriate trust, any other incidental costs such as salvage and casualty and certain other collateral diminution amounts such as excess mileage and damage payments and all administrative costs," Moody's states in its presale report.
Hertz Corp. is the deal’s servicer, primary lessee, guarantor and administrator. Fiserv is the backup disposition agent, while Lord Securities the backup administrator.
Moody's cites as a key credit strength of the deal Hertz Corp.'s experience as a sponsor. It is one of the largest car rental companies in the world, with over a decade of term securitization experience in the U.S. . The company's rental car business operation includes brand names Hertz, Dollar Thrifty, and Firefly.
Also, the collateral consists of highly liquid assets. That's important because, credit enhancement in rental car ABS is primarily overcollateralization in the form of vehicles, for which there exists a highly liquid secondary market that is well-established and geographically distributed.
Among the key ratings drivers for Fitch is the diversity of the vehicle fleet, which includes a mix of segments, makes, models and geographic concentrations. Concentration limits, based on a number of characteristics, are present to help mitigate the risk of individual OEM bankruptcies or failure to honor repurchase agreement obligations.
In addition, initial credit enhancement for the notes is dynamic and based on the fleet mix, with maximum and minimum levels.