8-K: Hertz Subsidiary HVF III Secures $685 Million in New Asset-Backed Notes to Fund Rental Car Fleet

Hertz Vehicle Financing III LLC, a wholly-owned subsidiary of The Hertz Corporation, has issued $685 million in new fixed-rate asset-backed notes across two series and amended an existing series to refinance its U.S. rental car fleet.

Summary

• Hertz Vehicle Financing III LLC (HVF III) issued two new series of fixed-rate rental car asset-backed notes on June 30, 2025: Series 2025-3 totaling $375,000,000 and Series 2025-4 totaling $310,000,000.
• The Series 2025-3 notes include Class A ($256,875,000 at 5.06%), Class B ($37,500,000 at 5.59%), Class C ($50,625,000 at 6.13%), and Class D ($30,000,000 at 8.55%), with an Expected Final Payment Date of December 2028 and Legal Final Payment Date of December 2029.
• The Series 2025-4 notes include Class A ($212,350,000 at 5.41%), Class B ($31,000,000 at 5.90%), Class C ($41,850,000 at 6.48%), and Class D ($24,800,000 at 9.34%), with an Expected Final Payment Date of December 2030 and Legal Final Payment Date of December 2031.
• HVF III also amended its Second Amended and Restated Series 2021-A Supplement on June 27, 2025, to issue new Class B Notes totaling $300,000,000 at a fixed interest rate of 9.28%, with a Commitment Termination Date of June 27, 2027, and a Legal Final Payment Date of June 27, 2028.
• The net proceeds from the Series 2025 notes were used in part to repay outstanding amounts on HVF III's Series 2021-A Variable Funding Rental Car Asset Backed Notes, with remaining funds allocated for future acquisition or refinancing of eligible vehicles for the U.S. rental car fleet.
• Principal payments on the Series 2025-3 Notes are not required until July 2028, and on the Series 2025-4 Notes until July 2030, after which one-sixth of the initial principal amount is expected to be paid until full repayment.

Sentiment

Score: 7

Explanation: The successful issuance of significant asset-backed notes provides stable, long-term financing for Hertz's fleet, which is a positive for liquidity and operational stability. While the interest rates vary, they reflect current market conditions for asset-backed securities. The detailed risk disclosures are standard for such filings and do not indicate new, unforeseen negative developments, but rather outline the inherent risks of the securitization structure.

Positives

• Successful issuance of new asset-backed notes totaling $685,000,000 provides significant financing for the U.S. rental car fleet.
• Refinancing of existing variable funding notes (Series 2021-A) with new fixed-rate notes potentially reduces interest rate risk.
• Staggered maturity dates for the new notes (December 2028/2029 for Series 2025-3 and December 2030/2031 for Series 2025-4) provide structured repayment schedules.
• The ability to issue additional Class E notes in the future, subject to certain conditions, offers flexibility for future financing needs.

Negatives

• The interest rates on the newly issued notes range from 5.06% to 9.34%, which may reflect current market conditions or the risk profile of the asset-backed structure.
• The new Class B Notes for Series 2021-A carry a relatively high fixed interest rate of 9.28%.
• Subordination of lower-class notes (Class B, C, D, and E) means higher risk for those noteholders in case of amortization events.

Risks

• **Amortization Events**: The occurrence and continuation of specific events could trigger early principal payments on the notes, including failure to pay principal or interest in a timely manner (within 5 consecutive business days for 2025 series, 3 for 2021-A series).
• **Asset Deficiency**: Failure to maintain sufficient assets compared to outstanding debt (Aggregate Asset Amount Deficiency) for five consecutive business days (2025 series) or three consecutive business days (2021-A series) can trigger an amortization event.
• **Liquidity Deficiency**: Failure to maintain sufficient liquidity in reserve accounts or letters of credit (Liquid Enhancement Deficiency) for five consecutive business days (2025 series) or three consecutive business days (2021-A series) can trigger an amortization event.
• **Liens on Assets**: The presence of certain unreleased liens on HVF III's assets for thirty consecutive days can trigger an amortization event.
• **Misrepresentations and Covenant Defaults**: Material misrepresentations by HVF III or the Administrator, or failure to comply with other agreements or covenants in the related documents, if not cured within thirty consecutive days, can trigger an amortization event.
• **Administrator Defaults**: Defaults by HVF III or The Hertz Corporation (as administrator) under the Administration Agreement can trigger an amortization event.
• **Payment Failure by Expected Final Payment Date**: Failure to pay notes in full by their Expected Final Payment Date will trigger an amortization event.
• **Interest Rate Cap Maintenance (Series 2021-A)**: Failure to acquire and maintain in force one or more Series 2021-A Interest Rate Caps for at least three consecutive business days can trigger an amortization event.
• **Change of Control (Series 2021-A)**: A change of control of Hertz or its subsidiaries can trigger an amortization event.
• **Hertz Senior Facility Defaults (Series 2021-A)**: A Hertz Senior Facility Default or a Hertz Senior Financial Covenant Breach can trigger an amortization event.
• **Collateral Servicer Issues (Series 2021-A)**: Failure of the Collateral Servicer to comply with obligations under the Back-Up Disposition Agent Agreement or the agreement ceasing to be in full force and effect can trigger an amortization event.
• **Enforcement of Remedies**: In the event of an amortization event, noteholders may force HVF III or the Trustee to sell vehicles, and if a default occurs under the Master Motor Vehicle Operating Lease and Servicing Agreement, may force Hertz to return vehicles for sale, with proceeds used to repay the notes.
• **FATCA Compliance**: Noteholders may be subject to withholding on payments if they fail to provide required information for FATCA compliance.
• **Market Value Fluctuations**: The value of the underlying rental car assets can fluctuate, impacting the asset coverage thresholds and potentially triggering amortization events.
• **Manufacturer Concentration**: The document details various concentration limits for vehicles from different manufacturers, indicating a risk if these limits are exceeded or if a manufacturer's credit rating declines.
• **Non-Liened Vehicles**: A concentration risk exists for vehicles where the Certificate of Title does not note the Collateral Agent as the first lienholder.

Future Outlook

HVF III may issue additional Series 2025-3 and 2025-4 Class E Notes in the future, subject to certain conditions, and may also increase the principal amount of existing Series 2021-A notes. The proceeds from the current offerings are expected to be used for future acquisition or refinancing of eligible vehicles for the U.S. rental car fleet.

Industry Context

The announcement relates to the ongoing strategy of The Hertz Corporation to finance its U.S. rental car fleet through asset-backed securitization platforms. This is a common financing mechanism in the rental car industry, leveraging the underlying vehicle assets. The issuance of fixed-rate notes provides stability in financing costs, which is crucial for managing a large, depreciating asset base.

Comparison to Industry Standards

• The structure of asset-backed notes with different classes (A, B, C, D, E) and subordination is a standard practice in vehicle securitization, reflecting different risk/return profiles for investors.
• The inclusion of various 'Amortization Events' and 'Liquid Enhancement' requirements (e.g., 3.75% and 4.00% of adjusted principal amount for 2025 series) are typical risk mitigation features in such securitizations, designed to protect noteholders.
• The detailed definitions related to vehicle types (e.g., Program Vehicle, Non-Program Vehicle, Medium-Duty Truck), manufacturer concentrations, and market value adjustments (e.g., NADA, Blackbook) reflect the specific asset class being securitized and are standard for rental car ABS.

Corporate Governance

Related Party Transactions

• Hertz Vehicle Financing III LLC (HVF III) is a wholly-owned, special-purpose and bankruptcy remote subsidiary of The Hertz Corporation (THC).
• THC acts as the Administrator for the notes.
• Hertz is the obligor on the Class A/B/C/D Demand Notes, which serve as collateral.
• Hertz is also a lessee under the Master Motor Vehicle Operating Lease and Servicing Agreement, which is central to the securitization.

Stakeholder Impact

• **Shareholders**: The successful financing provides liquidity and stability for Hertz's operations, potentially supporting long-term value. However, the interest rates on the notes represent a cost of capital.
• **Noteholders (Investors)**: New investment opportunities in asset-backed securities with defined interest rates and payment schedules. The subordination structure means different risk profiles for different classes of notes. Amortization events and their remedies outline the risks to their investment.
• **Employees**: Stable financing for the fleet supports ongoing business operations, which indirectly benefits employees.
• **Customers**: A well-financed fleet ensures vehicle availability for rental customers.
• **Suppliers (Manufacturers)**: The financing supports future vehicle acquisitions, benefiting vehicle manufacturers.
• **Creditors**: The securitization structure provides a clear priority of payments for the noteholders, impacting other creditors' claims in certain scenarios.

Next Steps

• HVF III is expected to make principal payments on Series 2025-3 Notes starting July 2028 and on Series 2025-4 Notes starting July 2030.
• HVF III may offer and sell additional Series 2025-3 and 2025-4 Class E Notes in the future.
• HVF III and the Administrator are required to furnish annual and quarterly financial reports of Hertz to noteholders.
• HVF III is required to furnish an Opinion of Counsel annually regarding the perfection of security interests in the collateral.

Key Dates

Keywords

Hertz, HVF III, Asset-Backed Notes, Securitization, Rental Car Fleet, Fixed Rate Notes, Debt Issuance, Corporate Finance, ABS, Vehicle Financing, Credit Ratings, Amortization Events, Risk Management, SEC Filing, Form 8-K