DBRS Morningstar Confirms Hertz Fleet Lease Funding LP Transactions

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on 18 securities issued by three series of the Hertz Fleet Lease Funding LP U.S. asset-backed master trust as follows.

-- Series 2017-1, Class A-1 Notes at AAA (sf)
-- Series 2017-1, Class A-2 Notes at AAA (sf)
-- Series 2017-1, Class B Notes at AA (high) (sf)
-- Series 2017-1, Class C Notes at A (high) (sf)
-- Series 2017-1, Class D Notes at BBB (high) (sf)
-- Series 2017-1, Class E Notes at BBB (sf)
-- Series 2018-1, Class A-1 Notes at AAA (sf)
-- Series 2018-1, Class A-2 Notes at AAA (sf)
-- Series 2018-1, Class B Notes at AA (high) (sf)
-- Series 2018-1, Class C Notes at A (high) (sf)
-- Series 2018-1, Class D Notes at BBB (high) (sf)
-- Series 2018-1, Class E Notes at BBB (sf)
-- Series 2019-1, Class A-1 Notes at AAA (sf)
-- Series 2019-1, Class A-2 Notes at AAA (sf)
-- Series 2019-1, Class B Notes at AA (high) (sf)
-- Series 2019-1, Class C Notes at A (high) (sf)
-- Series 2019-1, Class D Notes at BBB (high) (sf)
-- Series 2019-1, Class E Notes at BBB (sf)

The performance trends of the confirmed securities are such that credit enhancement levels are sufficient to cover DBRS Morningstar’s loss expectations at their current respective rating levels.

The outbreak of Coronavirus Disease (COVID-19) has thus far had minimal impact on the transactions. Generally, the obligors in fleet lease transactions are large corporate entities, in many cases, investment grade-equivalent. In open-ended leases, these obligors are typically obligated to cover lease payments as well as shortfalls in disposition proceeds against book value. Historically, lessee defaults in fleet lease transactions have been low. In instances where there have been defaults, losses have often been associated with the bankruptcy of the obligor. In addition, net loss rates in fleet lease portfolios have also typically been very low, ranging from zero to 15 basis points.

In the moderate scenario, DBRS Morningstar expects that the coronavirus will begin to be contained during Q2 2020, resulting in a gradual relaxation of stay-at-home measures and nonessential business closures, allowing a gradual economic recovery to begin starting in Q3 2020. During this recovery, it is possible that negative or sluggish GDP growth and increased unemployment could negatively affect the corporate ratings of some obligors. However, given the expected duration and severity of the economic downturn, any potential downgrades would not be expected to impair any downgraded obligor’s ability to perform the obligations under the lease; further, in the unlikely event of an obligor bankruptcy, a reorganization may result in affirmation of a lease and continued payments thereon. Additional information regarding DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the coronavirus pandemic can be found at <a href="https://www.dbrsmorningstar.com/research/359679/" target="_blank">Global Macroeconomic Scenarios: Implications for Credit Ratings.</a>

The rating actions taken by DBRS Morningstar are based on the following analytical considerations:

-- Transaction capital structure, current ratings, and form and sufficiency of available credit enhancement.
-- The transaction parties’ capabilities with regard to origination, underwriting, and servicing.
-- The credit quality and geographical and industry diversification of the collateral pool and historical performance.
-- Information regarding the extent of the impact of the coronavirus on originations, underwriting, operations, and portfolio performance to date, which was shared with DBRS Morningstar by Hertz/Donlen.
-- DBRS Morningstar’s assessment as to how collateral performance could be affected as a result of macroeconomic stresses brought about by the coronavirus pandemic.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the DBRS Master U.S. ABS Surveillance Methodology (July 31, 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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