DBRS Confirms Enterprise Holdings, Inc. at A (low), Trend Stable

DBRS Inc. (DBRS) has today confirmed the ratings of Enterprise Holdings, Inc. (Enterprise or the Company), including its A (low) Issuer Rating. The trend is Stable.

The rating confirmation considers the Company’s leading market position in the home city and on-airport rental markets, its strong and resilient earnings generation ability, and its sound, well-managed financial profile. Moreover, the ratings consider the Company’s demonstrated ability to manage both corporate and fleet costs, which DBRS views as notable given continued uncertainties as to the sustainability of the current economic recovery.

Enterprise‘s leading market position in the home city and insurance replacement rental segment affords the Company with strong and rather predictable revenue and earning streams. Further, the Company’s solid airport businesses, which operate under the Enterprise Rent-A-Car, National Car Rental (National) and Alamo Rent A Car (Alamo) brands rounds out the Enterprise suite of businesses. DBRS sees Enterprise’s tiered business approach via the three distinct brands, serving all segments of the marketplace, as a competitive advantage over its daily rental peers, all of which is considered in the rating. Prior to the 2007 acquisition of the National and Alamo brands with the purchase of Vanguard, Enterprise had a relatively small presence in the on-airport marketplace. As a result of the transaction, Enterprise became the leader in the airport vehicle rental marketplace when combining the market share of all three brands. Significantly, since the transaction closed, Enterprise’s market share in the on-airport market has increased 6 percentage points demonstrating that the Company has captured the substantial benefits of the Vanguard acquisition.

Furthermore, DBRS views Enterprise’s ability to generate strong and resilient earnings from its businesses as a key consideration in the rating. Evidencing the resiliency and strength of earnings, Enterprise remained profitable every quarter throughout the economic downturn. While earnings were impacted by the volatility of the used car market, the capital market disruptions, and the economic downturn, Enterprise’s earnings have fully recovered and have enjoyed a positive trajectory. Indeed, the Company recently reported its sixth consecutive quarter of year-on-year revenue growth. In fact, the third quarter ending April 30, 2011, was Enterprise’s most profitable fiscal third quarter in its history. Earnings continue to benefit from improving industry fundamentals and Enterprise’s sound management of fleet. Furthermore, transaction volumes continue to recover from recessionary lows, pricing remains stable and the used-vehicle market continues to be healthy.

The ratings consider Enterprise’s sound fleet management acumen. This proficiency combined with the strong operating model and solid market presence has allowed the Company to navigate through the seasonality of the daily rental business and the affects of the business cycle, with minimal impact on Company performance. As an example, despite unprecedented deterioration in the residual values of used vehicles in late 2008 and early 2009, and a significant reduction in travel volumes, unlike its peers, Enterprise remained profitable. DBRS consider this not only a testament to the noteworthy earnings generation capacity of Enterprise but reflecting both the flexibility of the business model and the expertise of the management team. Furthermore, DBRS views the success in integrating the Vanguard acquisition as further evidence of Enterprise’s fleet management aptness as well as the strength of the Company’s management team.

Enterprise has a conservative approach to liquidity and capital. Liquidity and funding remain solid and well-managed. The Company’s liquidity position is underpinned by solid levels of available liquidity well in excess of upcoming maturities and by good levels of free operating cash flow. Moreover, debt maturities remain well-laddered with approximately 54% maturing in more than five years. Notably, leverage remains well-below industry peers, with debt-to-tangible equity of 1.5x at April 30, 2011. Tangible equity remains sufficient and has consistently increased as a percentage of tangible assets over the past two years.

The trend is Stable. DBRS anticipates that earnings will continue to improve as FY 2012 progresses, given DBRS’s expectation of continued improvement in the operating environment and DBRS’s expectations that the industry fundamentals will remain sound. Moreover, recent indications in the stabilization in rental transaction volumes, albeit, at low levels to historic averages, and improved pricing will enhance profitability. While recent earnings have benefited from healthy used vehicle prices, DBRS sees the strong used vehicle market returning to more historical levels over time and therefore considers the Company’s ability to manage such moderation as a challenge. Nonetheless, given Enterprise’s strong track record of sound fleet management, DBRS expects the Company to successfully navigate this challenge.

St. Louis, MO-based Enterprise Holdings, Inc. is the largest, by market share, provider of daily rental vehicles in both the home city and on-airport rental segments throughout the United States, with smaller operations in Canada, the United Kingdom, Germany and Ireland. Enterprise is owned by The Crawford Group, Inc., which is primarily owned by members of the Taylor family.

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

The principal applicable rating methodology is Rating Finance Companies Operating in the United States, which can be found on our 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
Rating Committee Chair: Alan G. Reid
Initial Rating Date: 16 May 2001
Most Recent Rating Update: 13 July 2010