Sector developments and company hires

Hertz in line with settlement plan
Fitch reports that Hertz had disposed of nearly 170,000 non-program vehicles (NPVs) over the past five months, which is in line with its bankruptcy settlement plan. These dispositions amounted to approximately US$3.3bn of proceeds, with a combined net book value (NBV) of US$2.8bn. Per the Hertz Vehicle Financing II liquidation event, these sales proceeds have primarily paid down the outstanding ABS notes sequentially, first to the class A notes until they are paid off and then to subordinate notes.

Approximately 60% of outstanding class A notes have thus far been paid off to date. The class A ABS note balances total US$1.69bn (as of the October 2020 servicing report), accounting for 26.3% of the remaining HVF II note balance, and must be paid concurrently with the outstanding HVF II 2013-A variable funding notes (VFNs) class A US$1.76bn balance (representing 27.4% of HVF II).

Interest payments on the ABS notes continue to be funded by draws on letters of credit (LOC) provided by Goldman Sachs. The LOCs have funded ABS interest payments since Hertz filed for bankruptcy in May and are currently approximately 45% drawn. Fitch notes that they should continue to provide for interest payments through the end of 2020.

Fitch has reviewed and maintained its rating watch negative on all ratings on the outstanding rental car ABS issued by HVF II. The agency believes that Hertz still faces execution risks due to ongoing coronavirus impact on the travel and rental car sectors, as well as a challenging operating environment as it continues to operate in bankruptcy.

Mid-market JV formed
TCG BDC has formed a joint venture with an investment vehicle managed by Cliffwater to create Middle Market Credit Fund II (MMCF II). The transaction is designed to position TCG BDC to better capitalise on compelling senior-loan opportunities that have emerged amid the recent market volatility.

MMCF II initially consists of a US$250m portfolio in investment principal comprised predominantly of senior secured loans contributed from TCG BDC. While the equity ownership will be approximately 84% for TCG BDC and 16% for Cliffwater, each of TCG BDC and Cliffwater will have equal voting rights on the board, including equal voting discretion over any potential future investment activities of MMCF II. 

UK hotel CMBS hit
DBRS Morningstar has downgraded the ratings of UK hotel CMBS Ribbon Finance 2018, Magenta 2020 and Helios (ELoC 37), with the exception of the class A notes issued by Ribbon Finance, which it affirmed at triple-A. The agency has also assigned a negative trend to the ratings because the underlying collateral, and the UK hotel sector, continues to face performance challenges associated with Covid-19. Indeed, as England enters into a second national lockdown and tighter restrictions are enforced across the UK, it anticipates that hotel revenues will decrease further, pushing back any sector recovery.

Regarding Ribbon Finance, the borrower and facility agent have agreed to certain waivers, consents and amendments under the senior finance documents. Of note, the sponsor (the Dayan family) deposited £28m into the equity cure account, in exchange for a waiver of any senior loan EOD for a period up to the senior loan payment date falling on 13 July 2021.

Regarding the Magenta deal, CBRE has entered into an amendment and waiver letter with the senior loan facility agent, the mezzanine loan facility agent, senior holdco and mezzanine holdco with a view to allowing the senior obligors to manage their liquidity and their business in the medium term without breaching their obligations under the senior loan finance documents (SCI 18 June).

Finally, the Helios cash trap covenant was reportedly triggered in August, leaving almost no headroom for the debt yield default covenant (SCI 14 April). The borrowers and the servicer have not agreed to any amendment or waiver of senior financial obligations so far, according to DBRS Morningstar.