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

DBRS, Inc. (DBRS) confirmed the ratings of Enterprise Holdings, Inc. (Enterprise or the Company), including the Company’s Long-Term Issuer Rating of A (low) and its Short-Term Instruments rating of R-1 (low). Further, the Senior Notes rating of ERAC Canada Finance Company was confirmed at A (low), reflecting the guarantee from Enterprise Holdings, Inc. Concurrently, DBRS assigned Enterprise a Short-Term Issuer Rating of R-1 (low), and a Support Assessment of SA3, which results in the Company’s Intrinsic Assessment to be equalized with the Long-Term Issuer Rating at A (low). The trend on all ratings is Stable.

The ratings confirmation considers Enterprise’s strong global franchise, which holds leading market shares in the U.S. home-city and U.S. on-airport markets. Ratings also consider the Company’s resilient earnings generation capacity and solid balance sheet fundamentals, including a sound capital profile with low leverage, as well as solid funding and liquidity positions. The Stable trend reflects DBRS’s expectations that Enterprise will continue to generate sound earnings and maintain solid balance sheet fundamentals over the intermediate term. DBRS anticipates industry fundamentals will remain accommodative despite the expectation that used vehicle values in the U.S. will soften once the recent uplift from hurricane replacement activity subsides. DBRS expects that solid global economic growth will underpin growth in rental volumes, which combined with right-sized rental car fleet levels should lead to improving pricing.

Enterprise’s strong global franchise is underpinned by its leading rental car operations and truck rental business. The rental car franchise reflects its three global brands, including Enterprise Rent-A-Car, Alamo Rent A Car, and National Car Rental, with each brand catering to a specific market segment, allowing for differentiated market positioning and pricing. Overall, the Company’s operations include approximately 1.5 million vehicles and over 9,900 global locations.

The Company’s home-city business, which is the largest contributor to the top line, generates resilient revenues that tend to be less correlated to the general economy and travel volumes. Meanwhile, Enterprise’s leading on-airport rental business along with its growing international business, provide diversity to the top line.

Overall, the Company continues to demonstrate a conservative risk culture and manages its risks appropriately. Enterprise has historically managed its fleet capacity well, as the Company has significant institutional knowledge and robust systems to manage its fleet and the accompanying residual value exposure. Enterprise utilizes several channels to remarket and dispose of fleet to attain the best price possible, including local franchise dealers and independent dealers, retail networks, and auction houses. The Company’s broad set of disposition channels has been a positive contributor to its ability to consistently generate gains on the disposition of vehicles. Finally, DBRS expects the impact of the recent hurricanes to be a net benefit for the Company, especially as it has significant experience in moving fleet in/out of effected areas, as well as providing mobility solutions to government agencies, and other responding organizations.

Enterprise maintains a solid capital position, especially given the risk profile of its balance sheet. Overall, the Company continues to be capital accretive, and its owners have demonstrated a willingness to forego dividends during challenging periods or to help fund large acquisitions. Positively, leverage remains very manageable, and significantly below that of its large rental car peers. At July 31, 2017, debt-to-equity was 1.1x, down from 1.3x at July 31, 2016. Balance sheet fundamentals also include a well-managed liquidity profile with more than enough liquidity (as of July 31, 2017; after covering items including outstanding commercial paper) to cover senior debt maturities over the next 12 months. Funding remains well-diversified by channel, currency and duration, with approximately half of the Company’s funding maturing in more than five years. Finally, exposure to short-term interest rate movements remains moderate, as funding is primarily fixed rate.

RATING DRIVERS
Sustained growth in profitability underpinned by growing revenue including a greater share of revenues from overseas operations, could have positive rating implications. Conversely, missteps in fleet management leading to sustained pressure on earnings generation capacity, or a sizable increase in leverage, or a significant weakening of the Company’s liquidity position, could have negative rating implications. Additionally, deterioration in the Company’s market position, especially in the home-city business could pressure the ratings, 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 (November 2017) and DBRS Criteria – Guarantees and Other Forms of Support (February 2017), 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, CFA, Vice President, US Non-Bank FIG – Global FIG
Rating Committee Chair: Michael Driscoll, Managing Director, Head of NA FIG – Global FIG
Initial Rating Date: May 16, 2001
Most Recent Rating Update: November 18, 2016

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.