SFA Files Amicus Brief in Hertz Bankruptcy Case

Background:

In May 2020, Hertz Corporation filed for chapter 11 bankruptcy protection as a result of economic challenges brought on by the COVID-19 pandemic. As part of its bankruptcy bid, Hertz planned to liquidate part of its rental fleet without negotiating a deal with creditors. The move would negatively impact its ABS lenders and undermine the established securitized lease financing structure. In response, SFA submitted an amicus brief in support of objection to the Motion for Order Rejecting Certain Unexpired Vehicle Leases Effective Nunc Pro Tunc to June 11, 2020 Pursuant to Sections 105 and 365(A) of the Bankruptcy Code raising legal and policy concerns. Additionally, arguing the impact could set a precedent in securitizations across the car rental space and other asset classes.

Key Points:

• SFA reaffirms that ALL vehicles leased to Hertz in an ABS transaction are subject to the terms of the master lease agreement and serve as collateral to secure payments to noteholders. Therefore, SFA disputes Hertz’s motion in their ability to dismantle the master lease by rejecting certain vehicles and moving them into separate and individual contracts.
• SFA asserts that if companies like Hertz are allowed to liquidate assets and treat the master lease in a manner contrary to its transaction terms, it will not only negatively impact the noteholders under this specific transaction, but the risk profile of all current rental car ABS transactions.
• SFA highlights that these ABS structures which are typically classified as low risk will likely face reassessment by credit rating agencies, causing the widespread downgrade of ratings of similarly structured transactions. Thereby, hurting companies’ access to affordable forms of credit.
• SFA stresses that the outcome of this case would hurt the investor community by dissuading them from participating in ABS deals or other asset classes dependent upon asset leasing arrangements.