Morningstar DBRS Confirms Enterprise Holdings, Inc.’s Long-Term Issuer Rating at ‘A’; Trend Remains Stable

DBRS, Inc. (Morningstar DBRS) confirmed the credit 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'. The trend for all credit ratings is Stable. The Company's Intrinsic Assessment (IA) is 'A', while its Support Assessment is SA3, resulting in Enterprise's final credit ratings being equal with its IA. ERAC Canada Finance Company's credit ratings reflect the guarantee from Enterprise and as a result are equalized with the credit ratings of the Company.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings consider Enterprise's top-tier vehicle rental franchise underpinned by its considerable home-city and global on-airport businesses, along with a highly capable management team. The Company's eearnings generation capacity is resilient and supportive of the credit ratings despite lower reported earnings for the six month period ending January 31, 2024 (1H FY24). Additionally, the credit ratings are supported by Enterprise's well-managed risk profile, substantial unsecured funding, solid liquidity, and strong capital profile.

The Stable trend reflects our view that Enterprise's credit fundamentals will remain sound over the near term, despite softening used vehicle values, and economic headwinds including improved, but still persistent inflation and potentially higher for longer interest rates.

CREDIT RATING DRIVERS
A sustained increase in earnings or improved international revenue diversification, while maintaining strong credit fundamentals, would lead to an upgrade of the credit ratings. Conversely, a weakening market position, particularly in the Company's home-city business, missteps in fleet management leading to prolonged pressure on earnings, or a significant increase in leverage, would lead to a downgrade of the credit ratings.

CREDIT RATING RATIONALE
Franchise Building Block (BB) Assessment: Strong
Enterprise's leading vehicle rental franchise is underpinned by a strong and well-recognized home-city business in the U.S., along with a top-tier global on-airport vehicle rental business. The Company has considerable scale of operations with approximately 1.6 million rental vehicles and 9,500 global business locations, as well as tremendous brand recognition across its diverse rental car brands, including National Car Rental, Alamo Rent A Car, and Enterprise Rent-A-Car. Furthermore, Enterprise maintains a more modest sized truck rental business, which has demonstrated sound growth over recent years.

Earnings Building Block (BB) Assessment: Strong / Good
Enterprise's earnings generation is resilient and reflects the Company's significant scale of operations and its top-tier insurance replacement franchise that typically generates more consistent revenues than on-airport revenues which are highly impacted by seasonality and economic cyclicality. The Company's resilient earnings generation also reflects its variable cost structure.

With the decline in used vehicle values from unsustainably high post-pandemic levels, gains on vehicle dispositions were lower and in combination with higher costs of in-fleeted vehicles drove the lower earnings in 1H FY24, despite moderately higher rental revenues year-on-year (YoY). In addition, lower earnings reflected higher levels of depreciation costs, and personnel expense YoY. For full year FY24, we expect earnings to reflect similar dynamics.

Risk Building Block (BB) Assessment: Good
With a conservative risk culture and strong fleet management operations, we consider Enterprise's risk profile to be sound. We see operational risk as a key risk, given Enterprise's significant scale of operations, including large technology driven operating platforms, including fleet management and reservation systems. Overall, we consider operational risk to be well-managed, especially given that there have been no material operational issues over the last few years. Meanwhile, the Company's residual value risk is moderate, reflecting Enterprise's strong fleet management capabilities and conservative depreciation policy levels.

Funding and Liquidity Building Block (BB) Assessment: Good / Moderate
The Company's funding and liquidity positions are sound and well-managed. Enterprise's funding position consists of unsecured wholesale debt that is appropriately diversified by currency and duration. Liquidity consists of cash and substantial availability under the Company's committed credit facilities. Enterprise's liquidity position also reflects strong cash flows from operations.

Capitalization Building Block (BB) Assessment: Good
With its solid earnings generation capacity, a disciplined approach with respect to dividend payouts, and solid capital retention levels, the Company's capitalization remains ample. Enterprise's moderate balance sheet and cash flow leverage ratios are supportive of the credit ratings.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS   
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings.

Notes:
All figures are in US Dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Non-Bank Financial Institutions (15 April 2024) https://dbrs.morningstar.com/research/431187/global-methodology-for-rating-non-bank-financial-institutions. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings in its consideration of ESG factors.

The following methodologies have also been applied:

Morningstar DBRS Global Corporate Criteria (15 April 2024) https://dbrs.morningstar.com/research/431186/morningstar-dbrs-global-corporate-criteria

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The primary sources of information used for these credit ratings include Morningstar, Inc. and company documents. Other sources include Company Documents. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings was of satisfactory quality.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS's outlooks and credit ratings are under regular surveillance.

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

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