DBRS Morningstar Maintains UR-Dev. Status on Certain Hertz Vehicle Financing II LP Securities, Maintains UR-Neg. Status on All Class D Bonds

DBRS, Inc. (DBRS Morningstar) maintained its Under Review with Developing Implications status on 36 securities issued by Hertz Vehicle Financing II LP (HVF II LP). DBRS Morningstar also maintained the Under Review with Negative Implications status on the ratings of all Class D notes issued by HVF II LP.

On August 19, 2020, DBRS Morningstar changed the status of the ratings on 36 Class A, Class B, and Class C notes to Under Review with Developing Implications from Under Review with Negative Implications. At that time, DBRS Morningstar also maintained the Under Review with Negative Implications status of the ratings on 11 Class D notes.

DBRS Morningstar initially put all of the ratings on the notes issued Under Review with Negative Implications on April 29, 2020. DBRS Morningstar subsequently downgraded all of the ratings and maintained the Under Review with Negative Implications status on May 21, 2020. For more information, please refer to the April 29, 2020, press release titled “DBRS Morningstar Places Hertz Vehicle Financing II LP Securities Under Review with Negative Implications,” and to the May 21, 2020, press release titled “DBRS Morningstar Downgrades Ratings on Hertz Vehicle Financing II LP Securities, Maintains UR-Neg. Status.”

On July 24, 2020, the Hertz Corporation (Hertz or the Company) and the HVF II LP noteholders came to an agreement for an orderly disposition of approximately 182,000 vehicles and an agreement on reduced rent payments to be made, among other terms, between June 30 and December 31, 2020. The interim agreement provides guidance on the timing and the amount noteholders can expect regarding payments from Hertz for the HVF II LP securities through December 2020. On August 19, 2020, DBRS Morningstar released a commentary titled “Hertz’s Interim Agreement with ABS Investors Provides Roadmap for Second Half of 2020.” To date, Hertz has complied with the terms of the interim agreement. The Company has disposed of excess fleet and utilization rates on remaining fleet have improved.

Given the ongoing uncertainty of the duration and severity of the Coronavirus Disease (COVID-19) pandemic and the potential effects of this uncertainty on rental car operators as to optimal fleet size, additional time is required to evaluate the effect on the industry, as well as the impact on the operating and financial condition of Hertz.

Although many regions experienced less strict pandemic-related measures during the summer, the rising infection rates have led to more restrictions on interstate travel as well as travel abroad. There are also more stringent quarantine measures in some areas. If demand does not return to expected levels, rental car companies may have to de-fleet more than anticipated for the remainder of the year and potentially into 2021. For more information, see DBRS Morningstar’s commentary “DBRS Morningstar Revises Rental Car ABS Sector Outlook to Developing as Continued Effects of Coronavirus are Uncertain.”

In addition, risks continue to persist in the automotive sector. While the manufacturers have resumed operations after spring shutdowns and sales somewhat recovered in the second and third quarters, annual volumes are nonetheless estimated to decrease by up to 20% relative to 2019 levels. Earnings and cash flow will be correspondingly much weaker, although liquidity across the sector appears sufficient for the time being.

DBRS Morningstar continues to monitor Hertz’s progress in executing the terms of the agreement through 2020. Hertz received recently secured $1.65 billion in corporate debtor in possession (DIP) financing and a $4 billion rental car asset-backed DIP facility, positioning the Company for eventual emergence from bankruptcy.

Maintaining the Under Review with Developing Implications status on the Class A, Class B, and Class C notes and maintaining the Under Review with Negative Implications status on the Class D notes consider DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the coronavirus, available in its commentary “Global Macroeconomic Scenarios: December Update,” published on December 2, 2020. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, which were last updated on December 2, 2020, and are reflected in DBRS Morningstar’s analysis. The moderate scenario factors in increasing success in containment during the first half of 2021, enabling the continued relaxation of restrictions.

DBRS Morningstar will seek to complete its assessment and remove the ratings from Under Review status as soon as appropriate. Upon the resolution of the Under Review with Developing Implications status, DBRS Morningstar may upgrade, confirm, or downgrade the ratings on the affected classes. Upon the resolution of the Under Review with Negative Implications status, DBRS Morningstar may confirm or downgrade the ratings on the affected classes.

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 Morningstar Master U.S. ABS Surveillance (May 27, 2020), 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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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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