New York, 01-16-98 -- Moody's Investors Service assigned a P-2 short term rating to ERAC USA Finance Company which plans to establish a Commercial Paper Program. These obligations will be unconditionally guaranteed by Enterprise Rent-A-Car Company. Moody's rating is based on the company's significant position in the replacement rental business, its relatively strong earnings and debt protection measurements, and the extensive operating systems the company has built to manage the residual risk in its fleet. The rating also recognizes Enterprise's private ownership but anticipates that its financial condition will not be materially weakened as a result of potential future estate issues or other financial pressures on its owners.
Enterprise has established a major position in the replacement car sector of the rental market which has supported a more consistent financial performance than for those car rental companies that concentrate on airport locations. In Moody's view, Enterprise should continue to be well-positioned to benefit from insurance companies' and auto dealers' active use of replacement vehicles as an ongoing and integral part of their marketing strategies. In addition, the growth of discretionary in-city rentals, while in closer competition with the airport rental companies, will allow Enterprise to leverage its existing infrastructure into newer markets. Nevertheless, anticipated future competition from a number of the airport rental companies that are attempting to further penetrate the replacement rental sector may slow the rate of Enterprise's growth potential relative to its recent history.
The replacement rental market sector provides a number of advantages to Enterprise over companies that are more focused on the airport daily rental sector. For example, Enterprise's business is less seasonal since it does not rely primarily on leisure and business travel. This allows the company to utilize its fleet more efficiently. In addition, non-airport rental locations do not require the payment of airport fees and enjoy lower operating costs through less expensive real estate and reduced staffing hours.
Enterprise's earnings are sensitive to fluctuations in the value of pre-owned vehicles, as reflected in its financial results for the second half of its fiscal 1997 and the first quarter of fiscal 1998. In recognition of the impact of pre-owned car prices on its earnings, the company has consistently employed conservative depreciation policies, continues to sell its vehicles in excess of net book value, and maintains a well established internal operating system for tracking and marketing pre-owned vehicles. In addition, the company has developed a number of outlets, including its own dealership, to assist in its vehicle disposals. In Moody's view, Enterprise's fleet managment systems should enable the company to continue to produce adequate financial returns, and maintain liquidity through fleet turnover, despite the current softness in used car prices.
Enterprise Rent-A-Car Company, headquartered in St. Louis, Missouri, is believed to be the largest rental car company in the United States as measured by number of branches and fleet size. It services primarily the replacement rental car sector. ERAC USA Finance Company is a wholly-owned finance subsidiary of Enterprise Rent-A-Car Company.
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