Hertz began marketing the first-ever green car rental ABS this week as the company aims to increase the electric-vehicle component of its fleet to 25% by the end of next year.
The Florida-based company's US$600m securitization is structured as two bonds, each with four tranches. One US$300m bond, Hertz Vehicle Financing III LLC Series 2023-1, has a three-year tenor. The other US$300m bond, Hertz Vehicle Financing III LLC Series 2023-2, has a five-year tenor, according to a group of banks led by Bank of America.
Credit Agricole is the green adviser and a joint bookrunner. BMO, RBC and Truist are other joint bookrunners. Sustainalytics on Monday issued a second-party opinion on the company's green bond framework.
The 144A/Reg S offering, which could be upsized, is expected to price next week.
A person familiar with the deal said it would be well-received given the relative scarcity of green ABS supply and generally strong demand for auto-backed paper since the start of the year.
At present, Hertz relies on Tesla for its EVs, though it said in its 2022 annual report that it also has purchase agreements for EVs with from General Motors and Polestar.
A Moody's pre-sale report on Wednesday said that resale values of EVs tend to be more volatile than those of gas-powered cars. As such, this could affect car rental securitizations, which rely on vehicles maintaining their value when agencies ultimately sell them.
"During a rental fleet liquidation, residual values for non-program EVs would likely exhibit more volatility than non-program internal combustion engine (ICE) vehicles particularly if such distress coincided with a manufacturer bankruptcy or liquidation," Moody's said.
However, the rating agency noted that consumer sentiment about EVs was shifting, plus Hertz had capped its Tesla ownership at 25% for these bonds, thus mitigating risk from a single EV manufacturer.
In the meantime, residual values on all vehicles have been under pressure as used car prices have declined. The widely followed Manheim used vehicle price index was 224.8 in January, 13% lower than the record high of 257.7 in December 2021.
Hertz did not respond to a request for comment.