DBRS Assigns B (high) Issuer Rating to Dollar Thrifty Automotive Group, Inc., Trend Stable

DBRS has today assigned an Issuer Rating of B (high) and a Senior Unsecured Debt rating of B to Dollar Thrifty Automotive Group, Inc. (DTAG or the Company). The trend on all ratings is Stable. The ratings reflect the Company’s strengthening balance sheet metrics, the acceptable financial performance, and the overall stable franchise. The ratings also consider the Company’s reliance on secured sources of funding and limited diversification of revenues.

DBRS views DTAG’s improving financial performance, in the difficult operating environment, as a factor supporting the ratings. During 2009, DTAG recorded net income of $45.0 million, a significant improvement over the $346.7 million loss recorded in 2008. Importantly, corporate adjusted EBITDA increased to $99.4 million as compared to a loss in 2008. Additionally, 4Q09 was the fourth consecutive quarter of year-over-year improvement in EBITDA. While pricing and volumes improved, profitability benefited from the large net gains on disposition of vehicles owed to recovery in the used vehicle market. The Company benefits from the flexibility derived from the significant presence of variable costs in the overall cost structure. In 2009, DTAG removed 13.5% of direct operating costs by reducing average fleet size by almost 15%, while also extending the average age of the fleet.

The improved balance sheet metrics are a considerable factor in the rating. During 2009, the Company reduced vehicle related debt by $740.4 million. Meanwhile, the balance sheet also benefited from $120.6 million of new equity raised in October 2009. At December 31, 2009, debt-to-equity, including vehicle related debt, was a low 4.4x. Importantly, the Company has no net corporate debt.

DTAG’s overall solid business franchise is underpinned by the Company’s strategy of focusing on the value-priced leisure travel market. DTAG has maintained consistent market share through various business cycles evidencing strength in the brand and an ability to defend the franchise in an intensely competitive industry. Although, the Company continues to be successful in its niche, DBRS sees the Company’s narrow focus as limiting market share growth and revenue diversification.

While DBRS recognizes the recent actions taken by the Company to improve the funding profile, the secured wholesale funding concentration is considered a weakness. As of December 31, 2009, the Company had $570 million of vehicle-related debt scheduled to mature in 2010, and an additional $500 million due to mature in both 2011 and 2012. DBRS views this refinancing as manageable and notes that the Company has sufficient available unrestricted cash on its balance sheet to meet 2010 maturities, excluding 2010 operating cash flows. Moreover, the secured financing markets continue to improve. To this end, DTAG completed a $200 million two year, asset-backed note issuance in April 2010, refinancing a portion of the 2010 vehicle related debt maturities. The one-notch differential between the Issuer Rating and the Senior Unsecured Debt rating reflects the dominance of secured debt in the debt stack

The trend is Stable. DBRS anticipates DTAG’s profitability will continue to improve as 2010 progresses, as the operating environment for the daily rental car industry recovers. The Stable trend also reflects DBRS’s view that DTAG will continue to be successful in rolling its vehicle debt at maturity at increasingly more cost-effective terms.

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.