Fitch Rates Hertz Vehicle Financing II LP Series 2015-2 and 2015-3

NEW YORK--()--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):

Series 2015-2

--$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.

Series 2015-3

--$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.

RATING SENSITIVITIES

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;

--Capital Costs;

--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.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Global Rating Criteria for Rental Fleet ABS (pub. 08 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870244

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Related Research

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

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869747

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=991965

ABS Due Diligence Form 15E 1

https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=991965&flm_nm=15e_991965_1.pdf

ABS Due Diligence Form 15E 2

https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=991965&flm_nm=15e_991965_2.pdf

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=991965

Endorsement Policy

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

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Contacts

Fitch Ratings
Primary Analyst
Hylton Heard
Senior Direcotr
+1-212-908-0214
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Timothy McNally
Associate Director
+1-212-908-0870
or
Committee Chairperson
Du Trieu
Senior Director
+1-312-368-2091
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Hylton Heard
Senior Direcotr
+1-212-908-0214
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Timothy McNally
Associate Director
+1-212-908-0870
or
Committee Chairperson
Du Trieu
Senior Director
+1-312-368-2091
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com