DBRS Comments on AvisBudget Group, Inc.’s 1Q10 Results, Issuer at B (high), Trend Stable

DBRS has today commented that the ratings of AvisBudget Group, Inc. (AvisBudget or the Company), including its Issuer Rating of B (high), are unaffected following the Company’s announcement of 1Q10 earnings results. The trend on all ratings is Stable.

AvisBudget’s 1Q10 earnings results indicated a pre-tax loss of $66 million. Although reporting a loss, AvisBudget’s 1Q10 earnings release indicated continuing improvement in industry fundamentals with pricing in both commercial and leisure travel increasing, while volumes remain subdued. Importantly, the Company reported EBITDA growth in all three operating segments. For the quarter, the Company reported total EBITDA of $39 million compared to a loss in both the first quarter of 2009 and 2008. Results benefited from improved pricing, a reduction in fleet costs, and the Company’s cost savings and restructuring initiatives. Given the traditional seasonal impact on travel volumes in the first quarter and the uneven economic recovery, DBRS considers the quarter results as acceptable.

Domestic car rental revenue declined 8% year-on-year as volumes remained constrained due to the slowed economic recovery in the U.S. However, improved pricing in both commercial and leisure travel helped mitigate the impact on the bottom line. AvisBudget continues to keep the fleet tight and well-managed. To this end, the Company’s domestic average daily rate improved 3%. Further, Avis reported a decrease in fleet costs, driven by an 11% reduction in average fleet size and a 10% decline in per-unit fleet costs reflecting the continuing healthy used-vehicle market. DBRS sees the increase in pricing and reduced fleet costs as demonstrating solid fleet management and the financial flexibility afforded the Company from the significant presence of variable costs in the overall cost structure, both of which are viewed as strengths supporting the ratings.

AvisBudget’s funding profile continues to improve. During the quarter, the Company successfully extended the maturity of a revolving facility and a term loan; as well as issuing a $450 million senior note. The Company also completed two asset-backed bond issuances in 1Q10; including a $580 million issuance of asset-backed bonds to finance the domestic rental fleet and a $200 million asset-backed bond to fund the truck rental fleet.

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.