NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned the following ratings and Outlooks to the series 2015-2 and 2015-3 notes issued by Hertz Vehicle Financing II LP (HVF II):
--$189,475,000 class A notes 'AAAsf'; Outlook Stable;
--$46,209,000 class B notes 'Asf'; Outlook Stable;
--$14,316,000 class C notes 'BBBsf'; Outlook Stable;
--$15,111,000 class D notes 'BBsf'; Outlook Stable.
--$265,265,000 class A notes 'AAAsf'; Outlook Stable;
--$64,692,000 class B notes 'Asf'; Outlook Stable;
--$20,043,000 class C notes 'BBBsf'; Outlook Stable;
--$21,156,000 class D notes 'BBsf'; Outlook Stable.
KEY RATING DRIVERS
Diverse Vehicle Fleet: The vehicle fleet backing HVF II is deemed diverse under Fitch's criteria due to the current fleet mix, which is diverse by Original Equipment Manufacturer (OEM), program (PV) and non-program (NPV) vehicle mix, vehicle segment/make/model and geographic concentrations present.
Asset Concentrations Mitigated: The fleet vehicle mix is subject to OEM concentration limits, and there is a mix of PV and NPV, mitigating the risk of individual OEM defaults and losses.
Structural Features Mitigate Performance Risks: Monthly minimum depreciation applied and vehicle disposition proceeds and mark-to-market (MTM) value tests aim to ensure borrowing base parity between the ongoing fleet values and market values. These structural credit enhancement (CE) top-up features along with amortization triggers and events of default all mitigate risks stemming from vehicle value volatility or weakness.
Consistent Portfolio Performance: Hertz's historical vehicle fleet depreciation and casualty losses have been relatively stable, while the company has recorded mostly gains on NPV fleet dispositions in 2014 - 2015 with low losses to date through June this year.
Sufficient Credit Enhancement: Initial CE for the class A notes is dynamic, calculated based on specific fleet mix concentrations. Class A note maximum CE totals 39.79% for each series of the collateral, down to 15.75% for the class D notes. The dynamic CE presently covers Fitch's high and low (based on fleet mix) expected loss levels of 33.65% (2015-2), 33.89% (2015-3), and 19.51% (2015-2) and 19.74% (2015-3) for the relevant fleet mixes for each of the class A and D notes, respectively.
Stable OEMs and Wholesale Vehicle Market: The current financial health of the OEMs comprising the HVF II fleet is stable, while they continue to meet their obligations under program vehicle agreements. Despite recent softening, used vehicle values are currently viewed as healthy to stable, supporting Hertz's current vehicle fleet performance in 2015.
Adequate Fleet Servicer and Fleet Management: Hertz is deemed an adequate servicer/administrator to service each series, as evidenced by its fleet management abilities and historical fleet and securitization performance. Fiserv Automotive Solutions, Inc. (Fiserv) is the backup disposition agent, and Lord Securities Corp. (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.
Fitch's rating sensitivity analysis focuses on two scenarios involving potentially extreme market disruptions that would force the agency to redefine its stress assumptions. The first examines the effect of 1.5x and 2.0x increases in Fitch's base case disposition loss assumption. The second considers the effect of a 1.5x and a 2.0x increase in Fitch's bankruptcy/liquidation time frame stress. Finally, the last example shows the impact of both a 1.5x and 2.0x increase in Fitch's base case disposition loss assumption plus a 1.5x and 2.0x increase in its bankruptcy/liquidation time frame stress.
The purpose of these stresses is to demonstrate the potential rating impact on a transaction if one or a combination of these scenarios occurs. Ratings for each stress are assessed for both diverse and non-diverse pools. For all sensitivity scenarios, the notes show notable sensitivity with greater sensitivity to the 2.0x, the base case disposition loss for this series, and then heighted sensitivity in ratings to the impact of increases of both 1.5x and 2.0x in the base case disposition loss and increase in bankruptcy/liquidation period stress.
DUE DILIGENCE USAGE
Fitch was provided with third-party due diligence information from PricewaterhouseCoopers LLP (PwC). The third-party due diligence focused on a review of the procedures and related data for approximately 59 vehicles in the pool for each series, including the following areas:
--Title, Lien and OEM;
--Mark-to-Market and Disposition Proceeds.
Fitch considered this information in its analysis, but the findings had no impact on the recommended ratings. A copy of the ABS Due Diligence Form-15E received by Fitch in connection with this transaction may be obtained through the link at the bottom of this rating action commentary.
Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in the reports titled 'Hertz Vehicle Financing II LP, Series 2015-2 and 2015-3 -- Appendix'. These R&W are compared to those of typical R&W for the asset class as detailed in the special report 'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' dated June 12, 2015.
Additional information is available at www.fitchratings.com.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
Global Rating Criteria for Rental Fleet ABS (pub. 08 Sep 2015)
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Hertz Vehicle Financing II LP, Series 2015-2 and 2015-3 -- Appendix
Dodd-Frank Rating Information Disclosure Form
ABS Due Diligence Form 15E 1
ABS Due Diligence Form 15E 2