DBRS Confirms Hertz at BB, Trend Now Positive Following Acquisition Announcement

DBRS has today confirmed the ratings of Hertz Corporation (Hertz or the Company), including its Issuer Rating of BB. Concurrently, the trend has been revised to Positive from Stable. This rating action follows Hertz’s announcement that it is has entered into a definitive agreement to purchase Dollar Thrifty Automotive Group, Inc. (DTAG) for $1.3 billon.

The rating confirmation reflects Hertz’s strong business franchise and solid market position in the daily vehicle rental business, its improving financial performance, and solid fleet management. Further, the rating confirmation considers the improving industry fundamentals, which include increasing rental demand and volumes, solid pricing, and improved market-wide access to funding.

The revision in the trend reflects DBRS’s view that the proposed transaction will be a long-term positive for Hertz and will further strengthen Hertz’s overall solid franchise. The proposed acquisition combines two complementary businesses, Hertz with its strong presence in the premium and corporate travel segment, and DTAG, with its solid position in the value-oriented leisure travel segment. DBRS sees very little overlap in the businesses and, with the successful completion of the proposed transaction, Hertz will gain immediate scale in the value-priced customer segment, in which it currently lacks a significant presence.

Hertz’s earnings generation ability will be enhanced, as the acquisition is expected to be earnings accretive upon closing. Furthermore, earnings generation capacity will benefit from the $180 million of cost savings from projected synergies. Moreover, given that the proposed transaction will be financed through existing liquidity and stock, leverage will remain acceptable. DTAG’s corporate obligations will be repaid prior to closing, and Hertz will assume or refinance DTAG’s vehicle-related debt, which totaled $1.6 billion at December 31, 2009.

DBRS notes that, as with any acquisition, there are certain integration risks involved in this proposed transaction. However, given the size of this proposed transaction and the complementary nature of the businesses, DBRS expects this risk to be well-managed.

The proposed transaction is subject to customary closing conditions, DTAG shareholder approval, and regulatory approvals. Assuming a successful execution of the proposed transaction, DBRS will look for realization of the aforementioned benefits and synergies. Ratings will benefit from the Company’s ability to realize the benefits of the broadened customer base gained through this acquisition, while sustaining its strong global brand, and further strengthening the balance sheet.

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.