DBRS Morningstar Confirms Enterprise Holdings, Inc. at ‘A’, Trend Stable

DBRS, Inc. (DBRS Morningstar) confirmed the ratings of Enterprise Holdings, Inc. (Enterprise or the Company), and its related entity ERAC Canada Finance Company, including its Long-Term Issuer Rating of ‘A’. At the same time, DBRS Morningstar confirmed the short-term ratings of Enterprise and its related entity. The trend for all ratings is Stable. The Company’s Intrinsic Assessment (IA) is ‘A’, while its Support Assessment is SA3, resulting in Enterprise’s final ratings being equal with its IA. ERAC Canada Finance Company’s ratings are guaranteed by Enterprise and are also equalized.

KEY RATING CONSIDERATIONS
The confirmation reflects Enterprise’s strong global vehicle rental franchise, underpinned by 10,400 locations across 100 countries, a broad product offering, and a conservative management team, many of whom began their careers at the Company. Moreover, Enterprise’s resilient earnings generation through multiple business cycles are underpinned by solid top line contributions from its large home-city and on-airport businesses, along with a soundly-managed expense base. The ratings also consider Enterprise’s strong balance sheet fundamentals, including a well-managed risk profile, modest use of leverage, and a solid capital position. Finally, the Stable trend reflects DBRS Morningstar’s expectations that Enterprise’s credit fundamentals will remain solid over the medium term, even when taking into consideration the current business environment, including slowing global economic growth, and expectations of moderating used vehicle values.

RATING DRIVERS
A sustained increase in earnings generation, while maintaining strong balance sheet fundamentals, could have positive ratings implications. Additionally, enhanced revenue diversification, including a higher share of international revenues could have positive ratings implications. Conversely, a deterioration in Enterprise’s market position, especially in its home-city business, could result in negative ratings actions. Moreover, significant missteps in fleet management, leading to sustained pressure on earnings generation, or elevated operational risk, could have negative ratings implications.

RATING RATIONALE
The Company’s strong global vehicle rental franchise is underpinned by its top positions in the home-city and on-airport businesses. Overall, Enterprise’s franchise reflects a vehicle fleet totaling over 1.6 million units spread across 10,400 locations including corporate-owned, franchised and strategic partner operations. The franchise’s brand names are well recognized, including Enterprise Rent-A-Car, National Car Rental, and Alamo Rent A Car. Providing additional diversity, the Company operates a number of other more moderately sized businesses, including Enterprise Truck Rental, Enterprise Car Share, Commute with Enterprise (van pooling), and Subscribe with Enterprise.

Enterprise’s strong resilient earnings generation capacity is underpinned by positively trending revenues and a soundly-managed expense base. Overall, revenue growth reflects increasing rental days, steady pricing trends, and a used car market that has exceeded the Company’s expectations. Overall, Enterprise’s profitability measures, including its pre-tax return on assets continue to outpace its industry peers. Importantly, the Company’s home city business, which represents approximately two thirds of its rental days, provides a somewhat more stable source of revenues than the on-airport business, which is considered to be more susceptible to the general economy and the travel industry.

Overall, the Company’s risk position is sound and appropriately managed, reflecting the conservative nature of the management team. Indeed, DBRS Morningstar considers Enterprise’s fleet management capabilities, especially in moderating residual value risk, as a key strength and differentiator from its industry peers. Finally, despite the large operating platform that is dependent on large systems, including reservation and fleet management systems, the Company’s operational risk is well managed.

Other balance sheet fundamentals remain solid, including a strongly managed funding position that is diversified by funding type, currency and duration. Of note, the Company does not employ securitizations to fund its assets. DBRS Morningstar views favorably Enterprise’s high level of unencumbered assets, which affords the Company considerable financial flexibility even in periods of stress. Positively, debt maturities are well-spaced out with approximately 46% of total debt maturing in more than five years. Finally, capital is sound, especially given the Company’s sustained solid earnings generation and conservative capital management activities. Moreover, the Company’s owners continue to evidence a strong disposition in refraining from drawing significant levels of capital during periods of stress or large acquisitions. Finally, and reflective in its ratings, Enterprise’s leverage is modest and materially lower than its industry peers.

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

The applicable methodology is Global Methodology for Rating Non-Bank Financial Institutions (September 2019), and DBRS Criteria: Guarantees and Other Forms of Support (January 2019), and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (March 2019), which can be found on our website under Methodologies & Criteria.

The primary sources of information used for this rating include Company Documents. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.

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

For more information on this credit or on this industry, visit www.dbrs.com.

DBRS Morningstar
140 Broadway, 43rd Floor
New York, NY 10005 USA