DBRS Comments on Hertz Corporation 4Q09 Results, at BB, Trend Stable

DBRS has today commented that the ratings of Hertz Corporation (Hertz or the Company), including its Issuer Rating of BB are unaffected following the Company’s announcement of 4Q09 and full year 2009 financial results. The trend on all ratings remains Stable.

Today’s comment follows Hertz’s earnings release indicating a pre-tax loss of $67.4 million for 4Q09 and a pre-tax loss of $171 million for the full year. For the year, total revenue declined 16.7% to $7.1 billion, while corporate EBITDA decreased 10.9% to $979.9 million, excluding unusual items. However, illustrating the improving operating environment, worldwide revenue declined only slightly in 4Q09 to $1.7 billion, while corporate EBITDA increased 89.1% to $221.0 million. Results benefited from improved pricing, especially in on-airport leisure, a reduction in fleet costs, and Hertz’s ongoing focus on removing costs. Given the traditional seasonal impact on travel volumes in the fourth quarter, the muted demand for rental equipment, and the nascent economic recovery, DBRS considers the results as respectable. Further, the results further demonstrate the financial flexibility within Hertz’s cost structure and its sound fleet management, both key considerations in the rating.

Worldwide car rental revenue increased 3.4% to $1.5 billion for 4Q09. Importantly, pricing improved, as, industry wide, fleet remained tight and airport leisure pricing increased. To that end, rental rate revenue per transaction day increased 1.4%. The increase in pricing was partially offset by a decline in transaction days as airport rental demand remained subdued. Further, Hertz reported a 10% decrease in monthly rental car net depreciation, reflecting the reduced fleet size, longer hold periods, and the strong used-vehicle market. Also, DBRS notes that the year-over-year comparison for the quarter benefits from the increase in fleet costs in 4Q08, as the rental car industry, including Hertz, rapidly removed fleet due the precipitous decline in travel volumes. The improved performance in worldwide rental car was offset by a 26.1% decrease in worldwide equipment rental revenues as pricing remained under pressure while rental volumes remained restrained.

DBRS acknowledges Hertz’s much improved access to the capital markets as markets have begun to normalize. During the second half of 2009, Hertz completed its U.S. fleet refinancing a year ahead of schedule by closing on a $2.1 billion revolving variable funding note facility and issuing $1.2 billion of three and five-year asset-backed notes.

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

The applicable 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.