Morningstar DBRS Finalizes Provisional Rating to WTH Car Rental ULC, Fixed Rate Asset-Backed Senior Notes, Series 2024-1, Class A

DBRS Limited (Morningstar DBRS) finalized a provisional credit rating of AAA (sf) to the Fixed Rate Asset-Backed Senior Notes, Series 2024-1, Class A (the Class A Notes or the Series 2024-1 Class A Notes) issued by WTH Car Rental ULC.

CREDIT RATING RATIONALE/DESCRIPTION
The Series 2024-1 Class A Notes were issued by WTH Car Rental ULC on the Closing Date and are backed by a security interest in a fleet of rental vehicles (consisting of new and used automobiles, minivans, sport-utility vehicles, trucks and/or vans), and vehicle receivables originated in Canada.

The structure has a repayment risk profile whereby a portion of the proceeds from the issuance of the Class A Notes on the Closing Date may be used by WTH Car Rental ULC to repay all or a portion of principal on other outstanding series, and the remainder may be used to acquire rental vehicles for the rental fleet. The Class A Notes are privately placed term bonds, with monthly payments of interest generally being provided by monthly collections received from rental proceeds earned on the Vehicle Fleet. It is expected that the principal to repay the Class A Notes will be accumulated and paid during the Controlled Amortization Period.

The credit ratings incorporates the following considerations:

Dynamic Credit Enhancement
The level of credit enhancement ranges from 21.00% to 49.25% (as a percentage of the Series 2024-1 Class A Notes) based on the collateral (Program Vehicles, Vehicle Receivables, or Non-Program Vehicles), vehicle disposition/mark-to-market results, and the credit ratings of the underlying manufacturers. The majority of the enhancement is represented by overcollateralization achieved through the required asset base. The balance consists of a letter of credit and/or cash reserve account that is set at a minimum level of 4.75% of the Series 2024-1 Class A Notes issued.

Structural Protections
Clearly defined concentration limits are included for vehicle make, with additional constraints on age and mileage, restricting the composition of the revolving fleet throughout the term of the transaction. If triggered, Early Amortization Events (including nonpayment, breaches of representations and covenants, and insolvency of the transaction parties) will result in the acceleration of the repayment of principal on the Series 2024-1 Class A Notes. Additionally, a vehicle disposition test and a mark-to-market test, if breached, will result in an increase to the required enhancement level, as noted in the enhancement summary section.

Experienced Administrator
WTH Funding Limited Partnership has a long successful track record of managing the acquisition and disposition of Rental ULC's Vehicle Fleet through challenging economic cycles. Conservative depreciation rates have historically been applied to Non-Program Vehicles, resulting in gains on dispositions. Minimum depreciation rates on Program and Non-Program Vehicles, together with the disposition and a mark-to-market test, ensure that the asset base and/or credit enhancement are adjusted conservatively.

Backup Administrator and Liquidation Agent
Structural servicer protections will be included at the outset of the transaction with the appointment of an experienced Liquidation Agent in defi AUTO, LLC (formerly known as Sagent Auto, LLC) and an experienced Backup Administrator in Lord Securities Corporation. These third-party entities will be engaged at the closing of this transaction and their fees were included in the stress testing.

Morningstar DBRS' credit rating on the Class A Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the Class A Interest Amounts, Class A Controlled Deposit Amounts and any unpaid Class A Principal Balance.

Morningstar DBRS' credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS  
There were no Environmental, Social, or Governance factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) https://dbrs.morningstar.com/research/427030.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology applicable to the credit rating is Rating Canadian Rental Car Fleet Securitizations (September 29, 2023) https://www.dbrsmorningstar.com/research/421295.

Other methodologies referenced in this transaction are listed at the end of this press release.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The credit rating methodologies used in the analysis of this transaction can be found at:
https://www.dbrsmorningstar.com/about/methodologies.

-- Operational Risk Assessments for Canadian Structured Finance (April 5, 2024),
https://dbrs.morningstar.com/research/430834

-- Legal Criteria for Canadian Structured Finance (June 20, 2023),
https://www.dbrsmorningstar.com/research/416101

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/410863.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.