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. This rating action follows DBRS’s annual review of the Company.

The rating confirmation reflects the Company’s leading market position in the home city and on-airport vehicle rental markets, its substantial and resilient earnings generation ability, and its sound, well-managed financial profile. Furthermore, the ratings consider the Company’s proven ability to manage both corporate and fleet costs, which DBRS views as notable given the still weak economic recovery and uncertainties as to its sustainability. In addition, the ratings and Stable trend reflect the improving industry fundamentals, which DBRS sees continuing through 2012.

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, round out the Enterprise suite of businesses. DBRS views Enterprise’s tiered business approach via the three distinct brands serving all segments of the marketplace as a competitive advantage over its industry peers, all of which is considered in the rating.

The rating confirmation also considers Enterprises recent acquisition of Citer SA (Citer) from PSA Peugeot Citroёn, which was funded by cash on hand. DBRS views the transaction as a long-term positive for Enterprise as it further advances the Company’s stated goal of enlarging its international presence. To this end, Citer strengthens Enterprise’s European presence especially in France and Spain. As with any acquisition integration risks are present, however, given management’s track record of successfully integrating the Vanguard acquisition while capturing the benefits of the acquisition, DBRS expects Enterprise will successfully integrate Citer while realizing the anticipated benefits.

DBRS views Enterprise’s ability to generate strong and resilient earnings from across its business lines as a key consideration in the rating. This was demonstrated during the most recent economic cycle as Enterprise remained profitable every quarter despite an unprecedented deterioration in the residual values of used vehicles and a substantial reduction in travel volumes. While earnings were impacted during the recession, Enterprise’s earnings have been fully restored and are enjoying a positive trajectory across all business lines. Indeed, the Company recently reported its ninth consecutive quarter of year-on-year revenue growth. DBRS notes that the second quarter ending January 31, 2012, was Enterprise’s most profitable fiscal second quarter in its history. Higher transaction volumes driven by the Company’s sales and marketing activities along with the gradually strengthening economy have supported earnings growth. Moreover, earnings continue to benefit from the healthy used vehicle market and the stable pricing environment in the marketplace.

The ratings consider Enterprise’s sound fleet management acumen. This aptitude, combined with the strong operating model and leading market presence, has allowed the Company to navigate through the seasonality of the daily vehicle rental business and the business cycle, with minimal impact on Company performance. Indeed, in DBRS’s view, this skill was clearly demonstrated by Enterprise’s financial results during the last downturn, as discussed above. DBRS considers this not only a testament of the noteworthy earnings generation power of Enterprise, but reflecting both the flexibility of the business model and the expertise of the management team.

Enterprise maintains a conservative approach to liquidity and capital. DBRS views liquidity and funding as 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 61% maturing in more than five years. Access to the capital markets is good with the Company completing three corporate debt issuances since the beginning of 2011. Notably, leverage remains well-below industry peers, with debt-to-tangible equity of 1.2x at January 31, 2012. Tangible equity remains sufficient given the risk profile of the balance sheet, the strong earnings ability and substantial cash flow generated by the franchise.

The trend is Stable reflecting DBRS’s view that the positive trajectory in earnings will continue through the remainder of FY2012 and into FY2013. Moreover, the trend considers DBRS’s expectation that the operating environment will improve unevenly and that industry fundamentals will remain favorable. To that end, DBRS expects on-airport rental volumes to grow while pricing will remain competitive. 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.

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 company documents. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Lead Analyst: David Laterza
Rating Committee Chair: Alan G. Reid
Initial Rating Date: May 16, 2001
Most Recent Rating Update: July 14, 2011