DBRS Comments on Dollar Thrifty’s 3Q10 Results, at B (high), Stable

DBRS has today commented that the ratings of Dollar Thrifty Automotive Group, Inc. (DTAG or the Company), including its Issuer Rating of B (high) are unaffected following the Company’s announcement of 3Q10 earnings results. The trend on all ratings remains Stable.

Today’s comment follows DTAG’s earnings release indicating net income of $49.2 million for 3Q10, a 63% increase from the comparable period a year ago. On an underlying basis, DTAG reported corporate adjusted EBITDA of $81.8 million. Excluding merger-related expenses of approximately $11.9 million, corporate adjusted EBITDA was $93.7 million, the best quarterly performance in the Company’s history. The still favorable used vehicle market was the primary driver of the solid results. Indeed, vehicle depreciation and lease charges declined 16.7% year-on-year to $85.7 million. Also benefiting the quarter’s results was a modest improvement in rental days and sound pricing discipline. Moreover, results benefited from the continuing management focus on cost control efforts. DBRS considers the quarter’s results as very respectable.

Recovering demand and the Company’s pricing strategies continue to drive solid revenue generation. Total vehicle rental revenue increased 1.6% year-on-year to $425.5 million. Revenue per day (RPD) grew to $50.97, or a 0.2% increase year-on-year, evidencing good pricing discipline. Importantly, despite the tepid economic recovery and slower than anticipated growth in leisure travel demand, DTAG experienced solid growth of 1.4% in rental days. Going forward, DBRS expects rental demand to continue to recover slowly as consumer sentiment recovers from historically low levels. DTAG continues to demonstrate solid fleet management. Fleet utilization remained relatively stable year-on-year at 84.0%, despite the average fleet increasing 1.7%. Moreover, fleet costs continue to benefit from the healthy used vehicle market and changes to disposition operations utilizing the Company’s own sales force. Vehicle depreciation per unit for 3Q10 totaled $262 per month, 16.8% lower than a year ago, evidencing still strong resale values. DBRS notes that gains on sales of risk vehicles declined to $10 million from $16.8 million in 3Q09. The Company has largely cycled through the 2008 and 2009 vehicles which were depreciated during the trough of the used vehicle market. Going forward, the Company anticipates fleet costs will increase over the near-term to more normal levels due to lower gains on vehicle dispositions.

The Company continues to have solid access to the capital markets. In the ten months ending October 31, 2010, DTAG completed $950 million of new fleet financings in the U.S. and an additional $150 million fleet financing facility in Canada. At quarter end, the Company had over $1.0 billion of available liquidity to address near-term maturities. DTAG’s next medium term note maturity is $600 million, which will begin to amortize in December 2010. DBRS views this maturity profile as manageable.

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.