DBRS Comments on Dollar Thrifty’s 4Q10 and Full Year 2010 Results; Unchanged at B (high), Stable

DBRS Inc. (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 $12.5 million of net income, on a U.S. GAAP basis, in 4Q10 and $131.2 million for full year 2010. The trend on all ratings remains Stable.

DBRS views DTAG’s results as demonstrating solid operating performance given the tepid economic recovery and modest increase in leisure travel volumes. On an underlying basis, DTAG reported corporate adjusted EBITDA, excluding merger-related expenses, of $258.3 million for the full year, up an impressive 160% over 2009, and the best year in the Company’s history. For 4Q10, the Company reported corporate adjusted EBITDA of $30.2 million, a 15% increase over the comparable period a year ago, and the eighth consecutive quarter of year-on-year double digit growth. Results benefited from the solid revenue generation ability of the franchise and lower direct vehicle and operating expenses. Further, the improving industry fundamentals, which include recovering rental demand and volumes, solid pricing and improved market-wide access to funding, are benefiting results.

For the quarter, total vehicle rental revenue increased to $335 million on a 2.8% improvement in transaction days. In 4Q10, revenue per day (RPD) declined modestly year-on-year to $46.67, reflecting a slightly more competitive marketplace. DBRS expects continuing solid financial performance into 2011 as rental demand improves driven by the slowly recovering economy.

Results benefited from the continuing management focus on cost control efforts. Despite a higher revenue base, direct vehicle and operating expenses declined 6% to $168 million on favorable vehicle insurance expense and lower maintenance costs due to the reduced age of the fleet. DTAG continues to demonstrate solid fleet management. Despite the average fleet increasing 1.6% in the quarter, fleet utilization increased 90 basis points. Vehicle depreciation per unit for 4Q10 totaled $308 per month, 12.4% higher than a year ago, owed to lower gains on sale of risk vehicles and the refreshment of the fleet undertaken in 2010. Gains declined by $16.3 million due to the disposition of approximately 11,000 fewer vehicles, as the Company chose to slow the sale of vehicles in the seasonally weak quarter for used vehicle values. As the used vehicle market normalizes, DBRS foresees vehicle depreciation costs and gains on sale of risk vehicles as returning to historical levels; however, given the sound fleet management acumen of DTAG, DBRS sees the Company as well-placed to manage this risk.

The Company continues to have solid access to the capital markets. In 2010, DTAG completed $950 million of new fleet financings in the U.S., while reducing the overall debt stack by more than $300 million. At quarter end, the Company had over $1.0 billion of available liquidity to address near-term maturities. To this end, in December 2010, DTAG began amortizing a $600 million medium term note, which DBRS views as manageable.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal applicable methodology is Rating Finance Companies Operating in the United States, which can be found on the DBRS website under Methodologies.

The sources of information used for this rating include the issuer. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Lead Analyst: Steve Picarillo
Approver: Alan G. Reid
Initial Rating Date: 22 April 2010
Most Recent Rating Update: 1 October 2010