DBRS Confirms Enterprise Holdings, Inc.’s Issuer and Senior Debt Ratings at A (low), Trend Stable

DBRS, Inc. (DBRS) has today confirmed the ratings of Enterprise Holdings, Inc. (Enterprise, EHI or the Company), including the Company’s A (low) Issuer Rating. Concurrently, DBRS has confirmed the Company’s Short-Term Instruments rating of R-1 (low). Further, the Senior Notes rating of ERAC Canada Finance Company are confirmed at A (low), reflecting the guarantee from Enterprise Holdings, Inc. The trend on all ratings is Stable. This rating action follows a detailed review of the Company’s operating results, financial fundamentals, and future prospects.

The rating confirmation reflects Enterprise’s strong franchise, which is underpinned by leading market shares in the home-city and on-airport markets. Ratings also underscore the Company’s strong and resilient earnings capacity and durable balance sheet fundamentals. These considerations are balanced by several challenges to the Company’s bottom line, including uneven economic growth across its global markets, normalizing used vehicle values, and potential geopolitical risk and its impact on commercial and leisure travel. The Stable trend reflects DBRS’s view that Enterprise will maintain sound returns and balance sheet fundamentals, despite the before mentioned headwinds.

Enterprise’s robust franchise is underpinned by more than 9,500 on-airport and home-city locations across the globe. Its leading home-city and insurance replacement business provides the Company with a competitive advantage over its industry peers as these markets tend to be less correlated with the U.S. economy and travel volumes than the traditional on-airport car rental market. Importantly, the home-city business underpins the Company’s diverse, resilient and relatively predictable levels of revenues and earnings by generating the majority of total Company revenues. Complementing the home-city business is the Company’s leading on-airport business, which operates under the Enterprise Rent-A-Car, National Car Rental (National) and Alamo Rent A Car (Alamo) brands. DBRS considers the Company’s tri-brand strategy as benefiting the business by allowing for differentiated market positioning and pricing, while leveraging efficiencies of scale in non-customer facing functions. To this end, Enterprise has had a strong track record of quarterly profitability since its inception in 1957, including every quarter during the recent financial crisis.

Enterprise has continuously demonstrated sound fleet management through both business and economic cycles, which is an important consideration in the ratings. Indeed, the Company has a robust fleet management system that allows the Company to adjust the fleet size and mix to align the fleet with demand in local markets. Further, Enterprise maintains an extensive field staff that continuously monitors local market conditions for used vehicle values, including by make, type, and trim level, which affords the Company the ability to dispose of vehicles in the market that will garner the best financial result, and is a key contributor to the Company’s ability to consistently generate gains on the disposition of vehicles. Moreover, Enterprise’s operational flexibility to move vehicles between the on-airport and home-city markets and between brands leads to strong utilization rates supporting earnings.

Ample liquidity and solid capital profiles underpin the Company’s strong balance sheet fundamentals. Liquidity is well-managed with sufficient available liquidity (as of July 31, 2016; after covering items including outstanding commercial paper) to nearly cover maturing senior debt maturities through the end of FY18. Funding is diversified by channel, currency and duration with roughly half of funding maturing in more than five years. Positively, funding is predominately fixed rate, limiting Enterprise’s exposure to short-term interest rate movements. Leverage continues to be maintained at very low levels that are well-below industry peers. At July 31, 2016, debt-to-equity was 1.3x.

RATING DRIVERS
Given the Company’s high rating, DBRS does not see upward ratings movement over the near-to medium term. However, over the long-term, notable revenue expansion combined with a greater share of revenues from overseas operations would be viewed positively. Moreover, continued conservative balance sheet management as demonstrated by low levels of leverage would be necessary for potential positive rating implications. Meanwhile, a sizable impairment charge on the vehicle fleet due to mismanagement of residual risk, a marked increase in leverage, or a weakening of the liquidity position could have negative implications for the ratings. Further, a material deterioration of Enterprise’s market position, especially in the home-city business could result in ratings pressure, given the relative importance of this business to the Company.

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

The applicable methodologies are the Global Methodology for Rating Finance Companies (October 2016) and DBRS Criteria – Guarantees and Other Forms of Explicit Support (February 2016), which can be found on our website under Methodologies.

The primary 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: Mark Nolan
Rating Committee Chair: Michael Driscoll
Initial Rating Date: May 16, 2001
Most Recent Rating Update: October 28, 2015

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.