DBRS Morningstar Finalizes Provisional Ratings on Hertz Vehicle Financing III LLC, Series 2021-1 and 2021-2

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following notes issued by Hertz Vehicle Financing III LLC:

-- Series 2021-1, Class A Notes at AAA (sf)
-- Series 2021-1, Class B Notes at A (sf)
-- Series 2021-1, Class C Notes at BBB (sf)
-- Series 2021-1, Class D Notes at BB (sf)
-- Series 2021-2, Class A Notes at AAA (sf)
-- Series 2021-2, Class B Notes at A (sf)
-- Series 2021-2, Class C Notes at BBB (sf)
-- Series 2021-2, Class D Notes at BB (sf)

The ratings are based on a review by DBRS Morningstar of the following analytical considerations:
-- The transaction’s capital structure as well as the form and sufficiency of available credit enhancement.
-- Credit enhancement in the transaction is dynamic, depending on the composition of the vehicles in the fleet and certain market value tests.
-- Amortization Events include, but are not limited to, default in the payment of amounts due after five consecutive business days, default in the payment of amounts due by the expected final payment date, deficiency of amounts available in the liquidity reserve account, payment default under the master lease, the required asset amount exceeding the aggregate asset amount, servicer default, and administrator default.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the documents. The ratings address the timely payment of interest to the Class A, Class B, Class C, and Class D noteholders at their respective note rates as well as ultimate payment of principal on the notes, in each case by the legal final payment date.
-- The intention of each party to the master lease to treat the lease as a single indivisible lease.
-- The transaction allows vehicles, for which the Collateral Agent has not yet been noted on the Certificates of Title as lienholder, to remain as eligible assets for up to 28 days for new vehicles (which may be extended to up to 45 days in some states) and 45 days for used vehicles (Lien Holidays). All vehicles benefit from a negative pledge.
-- Inclusion of box trucks that are subject to a limit of 5% and a required credit enhancement of 35%.
-- The analysis considers DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the Coronavirus Disease (COVID-19), available in its commentary “Global Macroeconomic Scenarios - June 2021 Update,” published on June 18, 2021. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, which have been regularly updated. The scenarios were last updated on June 18, 2021, and are reflected in DBRS Morningstar’s rating analysis. The assumptions consider the moderate macroeconomic scenario outlined in the commentary, with the moderate scenario serving as the primary anchor for the current ratings. The moderate scenario factors in continued success in containment during the second half of 2021, enabling the continued relaxation of restrictions.
-- Mandatory shutdowns of nonessential businesses in spring 2020, which led to the closure of used-vehicle auctions and dealerships and resulted in a rapid decline in the value of used vehicles. However, by Q3 2020 values recovered and continued to increase because the global chip shortage has significantly reduced the availability of new vehicles, resulting in the recovery of used vehicle prices in spring 2021.
-- The transaction parties’ capabilities to effectively manage rental car operations and dispose of the fleet to the extent necessary, including the Back-up Disposition Agent, Defi AUTO, LLC, and the Back-up Administrator, Lord Securities Corporation.
-- The legal structure and its consistency with DBRS Morningstar’s Legal Criteria for U.S. Structured Finance methodology, the provision of legal opinions that address the treatment of the operating lease as a true lease, the nonconsolidation of the special-purpose vehicles with Hertz and its affiliates, and that the trust has a valid first-priority security interest in the assets.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating U.S. Rental Car Securitizations (September 18, 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 related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

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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