Hong Kong, April 23, 2019 -- Moody's Investors Service has assigned a B1 senior unsecured rating to
CAR Inc.'s (B1 stable) proposed USD notes.
The rating outlook is stable.
The proceeds from the proposed notes will be used to refinance existing
indebtedness and for general corporate purposes.
The bond rating reflects Moody's expectation that CAR will complete the
bond issuance upon satisfactory terms and conditions, including
proper registrations with the National Development and Reform Commission
in China (A1 stable).
RATINGS RATIONALE
On 23 April 2019, CAR announced an exchange offer for any and all
of the company's outstanding existing notes due in February 2020
with an outstanding principal amount of about USD500 million. The
exchange offer will expire on 3 May 2019.
Under the offer, for each USD1,000 principal amount of the
outstanding existing notes, the holders will receive USD1,000
in aggregate principal amount of the proposed notes, cash consideration,
and accrued interest in the form of cash.
Moody's does not regard this exchange offer as a distressed exchange --
which is considered as a default event under Moody's definition --
because the holders will not incur economic loss as the exchange offer
is at the par value of the existing notes.
The company is also expecting to conduct a concurrent offering of new
notes.
"The proposed notes issuance will not impact CAR's B1 corporate
family rating or stable outlook, as most of the proceeds will be
used to refinance existing debt," says Gerwin Ho, a Moody's
Vice President and Senior Credit Officer.
"The proposed notes will improve CAR's debt maturity profile,"
adds Ho, who is also Moody's Lead Analyst for CAR.
Moody's expects CAR to further grow its fleet by about 15%
year on year in the next 12-18 months, as the company continues
to invest to maintain its leading market position.
Moody's further expects rental revenue to grow about 8% annually
and the company's rental gross margin to remain relatively stable
at about 39% in the next 12-18 months compared with 2018,
as pricing pressure from competition offsets cost improvements from scale
and cost controls.
CAR'S EBITDA margin is likely to narrow to about 45% in the
next 12-18 months, mainly reflecting a larger revenue contribution
from its lower-margin used-vehicles sales.
The company is also likely to post moderate growth in debt and EBITDA
that will result in turn in adjusted debt/EBITDA increasing to about 4.1x
in the next 12-18 months from about 3.8x in 2018.
Such a level positions the company in the B rating category.
CAR's liquidity is weak. Its restricted and unrestricted cash of
RMB3.4 billion was insufficient to cover its short-term
debt of RMB4.7 billion as of 31 December 2018.
Nonetheless, the company has demonstrated a track record of access
to diversified funding channels, including debt instruments such
as onshore corporate bonds, offshore RMB bonds, and USD bonds.
Moody's also expects that the company will be able to roll over its debt
with domestic banks, given its profitable operations and strong
market position.
CAR's senior unsecured bond rating for the proposed USD notes is
not affected by subordination to claims at the operating company level,
because the latter is not seen as material, especially as Moody's
expects the majority of claims will remain at the holding company.
CAR's B1 corporate family rating is supported by the company's leadership
position in China's growing car rental market.
The B1 rating also consider the company's business model, which
exhibits a certain level of financial flexibility, as seen by the
short lead time for its fleet acquisitions, its asset-light
network, and its ease of asset disposals.
On the other hand, the ratings also reflect the fact that CAR faces:
(1) competition from other car rental companies and indirect competition
from non-car rental companies that provide transportation services;
and (2) regulatory risks in terms of controls on vehicle ownership,
the traffic points system, local regulation of the automotive rental
industry, and regulations related to online chauffeured car services.
The stable ratings outlook takes into account Moody's expectation that
CAR will maintain its leading market position and stable level of debt
leverage, and will be able to re-finance its short-term
debt.
Ratings upgrade pressure could arise if CAR: (1) maintains its leading
market position, grows in scale, and demonstrates resilience
in down-cycles; (2) demonstrates stability in its profit margins;
(3) maintains prudent financial management; and (4) shows improved
credit metrics, such that cash/short-term debt exceeds 1x
and debt/EBITDA is below 3x on a sustained basis.
On the other hand, ratings downgrade pressure could arise if CAR
exhibits: (1) declining revenues; (2) a further weakening of
liquidity; or (3) a deterioration in its credit metrics, due
to increased competition, shareholder distributions, or aggressive
expansion and acquisitions.
Credit metrics indicative of ratings downgrade pressure include debt/EBITDA
exceeding 5.0x on a sustained basis.
The principal methodology used in this rating was Equipment and Transportation
Rental Industry published in April 2017. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
CAR Inc., founded in 2007 and headquartered in Beijing,
provides car rental services, including car rentals and fleet rentals
in China. CAR listed on the Hong Kong Stock Exchange in September
2014.
At 31 December 2018, CAR had a total fleet of 135,191 company-owned
vehicles. It commands a leading position in China by fleet size
and revenue. During 2018, it reported net sales of RMB6.4
billion.
And, at 31 December 2018, CAR's key shareholders included
Legend Holdings Corporation (26.6%) and UCAR Inc.
(29.8%).
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
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the rated entity is participating and the rated entity or its agent(s)
generally provides Moody's with information for the purposes of
its ratings process. Please refer to www.moodys.com
for the Regulatory Disclosures for each credit rating action under the
ratings tab on the issuer/entity page and for details of Moody's
Policy for Designating Non-Participating Rated Entities.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Gerwin Ho
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Clement Cheuk Yiu Wong
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
