DBRS Confirms Enterprise Rent-A-Car at A (low), Trend Stable

DBRS has today confirmed the ratings of Enterprise Rent-A-Car Company (ERAC or the Company), including its A (low) Issuer Rating. The trend is Stable.

The rating confirmation considers the Company’s strong market position in the home city and airport vehicle rental segments, its solid revenue generation ability, and its sound, well-managed liquidity profile. Additionally, the ratings consider the Company’s proven cost-management acumen, which is particularly relevant given the current weakened economic environment.

Profitability remains acceptable, although, earnings have been reduced by the lower volumes of rental transactions, the volatility of the used vehicle market, and higher than historic fleet costs. Lower interest costs and reduced operating expenses partially offset the aforementioned negative pressures. Looking forward, given the recessionary environment and the reduced demand in both the home city and airport rental segments, DBRS expects earnings to remain below recent record levels but, should nonetheless remain solid. Despite lower net earnings, ERAC continues to generate overall very solid EBITDA.

ERAC’s solid fleet management allows the Company to navigate through the ebbs and flows of the daily rental business. This expertise allowed ERAC to dispose of risk vehicles at relatively favourable terms, although this became most challenging during the end of 2008 and the first calendar quarter of 2009. Nonetheless, ERAC’s extensive history of successfully managing the residual risk of its fleet is a significant rating advantage. Further, DBRS views the success in the Vanguard acquisition as a testimony to ERAC’s fleet management aptness as well as the strength of the Company’s management team.

ERAC’s strong brands underpin the rating. As the industry leader in the home city and insurance replacement rental segment, ERAC has solid market position and strong and rather predicable earnings generation ability. The 2007 addition of the National Rental Car (National) and Alamo Rental (Alamo) car businesses further strengthened ERAC’s franchise strength, as this transaction enhanced ERACs presence in the important on-airport segment. Benefits of the merger are evidenced by the combined airport vehicle rental market share of the three brands making ERAC the leading vehicle rental company in the airport segment. DBRS sees ERAC’s three prong business approach as a competitive advantage over its competitors in the daily vehicle rental industry.

Leverage remains acceptable and the current ratings incorporate continued reduced leverage. ERAC remains focused on utilizing free cash flow to manage and reduce its outstanding debt, to this end, debt has been reduced consistently since the National and Alamo acquisition. Leverage continues to be within DBRS’ tolerance levels, given ERAC’s achievable plan to reduce leverage over time. The Company continues to execute on its debt reduction plan. Liquidity remains solid, with cash and cash flows from operations sufficient to service its well-laddered debt maturities. ERAC’s well managed liquidity profile and its manageable debt maturity are also factors that support the Company’s rating. Tangible equity remains sufficient and has consistently increased as a percentage of tangible assets over the past five years.

The Stable rating trend reflects DBRS’s view that, although the overall volume of rental transactions will remain depressed, ERAC’s large variable cost structure, including the flexibility to reduce its fleet, will allow the Company to continue to generate acceptable levels of cash flow from operations, while remaining solidly profitable. However, ratings could face negative pressure should debt levels increase substantially or the Company’s profitability come under significant strain, evidencing a loss of market share in its core home city market, or deterioration in its ability to manage its fleet adequately.

St. Louis, MO-based Enterprise Rent-A-Car Company is the largest, by market share, provider of daily rental vehicles in both the home city and on-airport rental segments throughout the United States, with smaller operations in Canada, the United Kingdom, Germany and Ireland. ERAC is owned by The Crawford Group, Inc., which is primarily owned by members of the Taylor family.

Note:
All figures are in U.S. dollars unless otherwise noted.

The applicable rating methodology is Rating Finance Companies Operating in the United States, which can be found on our website under methodologies.

This is a Corporate (Financial Institutions) rating.