DBRS Comments on Avis Budget Group, Inc.’s 3Q10 Results, at B (high), Trend Stable

DBRS has today commented that the ratings of Avis Budget Group, Inc. (Avis Budget 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 is Stable.

Today’s comment follows Avis Budget’s earnings release indicating pre-tax income of $144 million for 3Q10, a noteworthy increase from $83 million a year ago. For the quarter, adjusted EBITDA, which excludes restructuring and transaction related costs, grew 32.7% to $219 million, the Company’s best quarter since 2005. Importantly, for the second consecutive quarter all three operating segments reported year-on-year growth in adjusted EBITDA and margins. The results benefited from a shift of business volumes from unprofitable channels, lower fleet costs, recovering travel volumes and the Company’s initiatives to reduce fixed costs. DBRS views the quarter’s results as evidencing solid momentum across the franchise.

Importantly, the third quarter was Avis Budget’s first quarter of positive year-on-year revenue growth since mid- 2008. For the quarter, total revenue increased 3% to $1.5 billion, largely attributed to a 4% increase in rental days as demand from both corporate and leisure travelers strengthened. Average daily rate decreased 2%, reflecting challenging comparisons due to significant leisure price gains achieved a year ago, as well as a shift in business mix to longer rentals and by faster growth in the Budget brand than at Avis. Rate related pressure on revenues was somewhat mitigated by the 3% increase in domestic ancillary revenue. Further, profitability was supported by lower fleet costs. Depreciation costs decreased slightly to $352 million, reflecting a 5% decline in per-unit fleet costs, as the used-vehicle market remained favorable, partially offset by a 4% increase in average fleet.

Liquidity remains well-managed, underpinned by good access to the capital markets. At September 30, 2010, Avis Budget had $3.2 billion of total liquidity available, including over $623 million of cash, a $1.2 billion corporate revolving facility with no borrowings currently outstanding and more than $1.4 billion of available capacity under the Company’s vehicle backed financing programs. DBRS notes that Avis Budget successfully completed a $700 million asset-backed offering in October, which refinances the $600 million of domestic term ABS maturing in 2011.

Avis Budget and Dollar Thrifty Automotive Group, Inc. (DTAG) continue to cooperate in pursuit of anti-trust clearance for Avis Budget’s proposed acquisition of DTAG. DBRS continues to monitor developments regarding the potential acquisition and may provide further commentary or take rating actions as developments warrant.

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.