DBRS Upgrades Dollar Thrifty Automotive Group, Inc. to BB following Acquisition

DBRS, Inc. (DBRS) has today upgraded the ratings of Dollar Thrifty Automotive Group, Inc. (DTAG), including its Issuer Rating to BB from “B” (high). The trend on the ratings is Negative. Concurrently, the ratings have been removed from Under Review with Positive Implications, where they were placed on August 28, 2012.

Today’s rating action follows the closure of the acquisition of DTAG by the higher-rated Hertz Corporation (Hertz or the Company). DBRS’s Issuer Rating for Hertz is BB, with a Negative trend. With the completion of the transaction, DTAG has become a wholly-owned subsidiary of Hertz. As such, the ratings of DTAG and Hertz are equalized. DBRS notes that as part of the acquisition Hertz has assumed DTAG’s fleet-backed debt, which totalled $1.5 billion as of September 30, 2012. DTAG had no corporate debt outstanding as of the acquisition date.

The Negative trend reflects DBRS’s view that the completed acquisition entails certain near-term concerns including a modest increase in leverage and integration risk. DBRS is concerned that the transaction somewhat weakens Hertz’s financial profile at a time of heightened uncertainty about the strength of the global economy. Although modest, the increase in leverage reverses recent progress achieved by the Company in reducing its overall leverage. Importantly, DBRS notes that Hertz has committed to restoring leverage to pre-acquisition levels within twelve months. DBRS comments that the acquisition includes substantial integration risks including cultural, technology platforms and fleet management. Nonetheless, Hertz’s successful track record of integrating past acquisitions and the complementary nature of the businesses, somewhat mitigates this risk.

Despite these concerns, DBRS views the transaction as a long-term positive for Hertz, as the transaction strengthens the Company’s overall franchise combining two complementary businesses. Moreover, DBRS sees very little overlap in the businesses and, Hertz gains immediate scale in the value-priced customer segment, in which it historically lacked a significant presence.

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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: David Laterza
Rating Committee Chair: Alan G. Reid
Initial Rating Date: April 22, 2010
Most Recent Rating Update: August 28, 2012

For additional information on this rating, please refer to the linking document under Related Research.