Fitch Affirms Hertz Vehicle Financing II LP Outstanding Notes; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following notes issued by Hertz Vehicle Financing II LP (HVF II) as a result of its annual review of the trust:

HVF II, Series 2015-2

--$189,475,000 Class A notes at 'AAAsf'; Outlook Stable;

--$46,209,000 Class B notes at 'Asf'; Outlook Stable;

--$14,316,000 Class C notes at 'BBBsf'; Outlook Stable;

--$15,111,000 Class D notes at 'BBsf'; Outlook Stable.

HVF II, Series 2015-3

--$265,265,000 Class A notes at 'AAAsf'; Outlook Stable;

--$64,692,000 Class B notes at 'Asf'; Outlook Stable;

--$20,043,000 Class C notes at 'BBBsf'; Outlook Stable;

--$21,156,000 Class D notes at 'BBsf'; Outlook Stable.

HVF II, Series 2016-1

--$332,902,000 Class A notes at 'AAAsf'; Outlook Stable;

--$81,187,000 Class B notes at 'Asf'; Outlook Stable;

--$25,152,000 Class C notes at 'BBBsf'; Outlook Stable;

--$26,549,000 Class D notes at 'BBsf'; Outlook Stable.

HVF II, Series 2016-2

--$425,000,000 Class A notes at 'AAAsf'; Outlook Stable;

--$103,648,000 Class B notes at 'Asf'; Outlook Stable;

--$32,111,000 Class C notes at 'BBBsf'; Outlook Stable;

--$33,894,000 Class D notes at 'BBsf'; Outlook Stable.

HVF II, Series 2016-3

--$299,979,000 Class A notes at 'AAAsf'; Outlook Stable;

--$77,116,000 Class B notes at 'Asf'; Outlook Stable;

--$22,905,000 Class C notes at 'BBBsf'; Outlook Stable;

--$24,177,000 Class D notes at 'BBsf'; Outlook Stable.

HVF II, Series 2016-4

--$299,979,000 Class A notes at 'AAAsf'; Outlook Stable;

--$77,116,000 Class B notes at 'Asf'; Outlook Stable;

--$22,905,000 Class C notes at 'BBBsf'; Outlook Stable;

--$24,177,000 Class D notes at 'BBsf'; Outlook Stable.

KEY RATING DRIVERS

Diverse Vehicle Fleet: HVF II is deemed diverse under the criteria due to the high degree of manufacturer, model, segment and geographic diversification in Hertz and Dollar Thrifty's rental fleets. 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

OEM Financial Stability: OEMs with program vehicle PV concentrations in HVF II have all improved their financial position in recent years and have positioned themselves well to meet their respective repurchase agreement obligations. Fitch affirmed the Long-Term Issuer Default Rating (IDR) of Fiat Chrysler Automobiles NV (FCA), the largest PV OEM in HVF II currently, at 'BB-' in October 2015, and upgraded the IDR of GM (third largest PV OEM) to 'BBB-' in June 2015.

Consistent Performance: Hertz's historical vehicle fleet depreciation has been relatively stable, despite recent increases in 2014-2015 for non-program vehicles (NPV) due to higher aging within the fleet. Historical vehicle disposition losses have been minimal for PV, and NPV have recorded mostly gains. However, dispositions are expected to come under pressure over the next two to three years from the increasing vehicle supply in the U.S. wholesale market.

Enhancement Covers Fitch's Expected Loss: Initial credit enhancement (CE) for the notes is dynamic and based on the HVF II fleet mix, with maximum and minimum levels. The dynamic CE levels for all class of notes in each series cover or are within range of Fitch's maximum and minimum expected loss (EL) levels for all classes under the current ratings.

Structural Features Mitigate Risk: Vehicle market value/disposition proceeds tests, amortization triggers and events of default all mitigate risks stemming from ongoing vehicle value volatility and weakness, ensuring parity between asset values and ongoing market conditions, resulting in low historical fleet disposition losses and stable depreciation rates.

Adequate Fleet Servicer and Fleet Management: Hertz is deemed an adequate servicer and administrator, as evidenced by its historical fleet management and securitization performance to date. Fiserv is the backup disposition agent, while Lord Securities the backup administrator.

Legal Structure Integrity: The legal structure of the transaction provides that a bankruptcy of Hertz would not impair the timeliness of payments on the securities.

RATING SENSITIVITIES

In the initial analyses for all series, Fitch assumed longer periods for the bankruptcy/liquidation timing scenario and also considered a scenario whereby the disposition stresses were moved to the higher end of the range. Finally, Fitch considered a scenario in which both scenarios were combined, which would produce the highest amount of stress for the notes. The notes showed heavier sensitivity to the combined scenarios and could see downgrades of one to two categories.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to these rating actions.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)

https://www.fitchratings.com/site/re/886006

Global Rating Criteria for Rental Fleet ABS (pub. 31 Aug 2016)

https://www.fitchratings.com/site/re/886929

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/site/re/883130

Related Research

Hertz Vehicle Financing II LP, Series 2015-2 and 2015-3 -- Appendix

https://www.fitchratings.com/site/re/869747

Hertz Vehicle Financing II LP, Series 2016-1 and 2016-2 -- Appendix

https://www.fitchratings.com/site/re/877041

Hertz Vehicle Financing II LP, Series 2016-3 and 2016-4 -- Appendix

https://www.fitchratings.com/site/re/881991

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1011586

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011586

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160913006359/en/

Fitch Ratings
Primary Analyst
Timothy McNally
Associate Director
+1 212-908-0870
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Committee Chairperson
Hylton Heard
Senior Director
+1 212-908-0214
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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