Hertz Corp. is issuing another $500 million of bonds backed by open-end corporate auto and light-duty truck leases from its master trust.
Hertz Fleet Lease Funding Series 2018-1, is a master trust collateralized by over $1.4 billion in outstanding corporate leases originated and serviced by Donlen Corp., based in Northbrook, Ill., which Hertz acquired in 2011. Notes were previously issued from the master trust in April 2017.
The senior, Class A notes being issued include both floating- and fixed-rate note tranches totaling $444.5 million, and have preliminary triple-A ratings from Moody’s Investors Service and DBRS. Class A credit enhancement is 14.1%, including subordination (10.8%), overcollateralization (2.56%), and an initial cash reserve of 0.73%.
Also being issued are $12.88 million in Class B subordinate notes that are rated Aa2 by Moody’s and AA by DBRS; $12.4 million in Class C notes rated A2/A; and $12.13 million Class D notes at Baa2/BBB (high).
An $18.13 million Class E tranche of subordinate notes are not rated by Moody’s, but carry a triple-B from DBRS.
The lessees in the pool are midsize and large corporates, 53% of which (by securitization value of the leases) are rated by Moody’s.
The total securitization value is $1.43 billion across 98,520 leases, of which more than 94% are passenger vehicles. The average securitization value is $17,756 with an original weighted average maturity of 53 months. Nearly 20% of the leases are concentrated in Texas.
The largest lessee makes up 8.7% of the pool, while the top five make up 25.1%. (Moody’s stated that is comparable to the corporate-fleet leasing deals of another recent issuer, Chesapeake Funding II LLC Series 2018-1.)
Exposure to oil and gas companies has increased slightly compared to last year’s Hertz corporate-fleet deal, but is still lower than four recent transactions. The top five industries make up 52% of the securitization value.
The securitization’s two-tier structure (similar to other fleet-lease securitizations) involving both a titling trust that holds the vehicles and titles, and a special-purpose entity borrower wholly owned by Donlen, which holds a special-interest certificate in the assets. That borrowing entity in turn pledges the certificate to the issuer in exchange for a loan, which is funded by the lease receivables used to pay the notes.
The loan may also be repaid from the sale of older vehicles by lessees, who take responsibility for the resale of the vehicles in the open-end lease arrangement.
Open-end leases, in which lessees absorb the risk of the resale value of vehicle, make up all of the collateral in the pool, which provides limited residual value risk to Hertz and Donlen. However, the trust is permitted to add closed-end leases into the pool during the 13-month revolving period to a maximum size of 3% of the pool.
Hertz only carries residual risk on vehicles through defaults, which are historically rare (losses are at or near 0% as a percentage of total billings, according to Moody’s).