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Rating Action:

Moody's assigns (P)B1 and B3 ratings to Europcar's proposed secured and unsecured notes; affirms B1 CFR; stable outlook

16 Oct 2017

London, 16 October 2017 -- Moody's Investors Service has today assigned B3 instrument rating to the proposed EUR600 million senior unsecured notes due 2024 to be issued by Europcar Drive DAC and a provisional (P)B1 instrument rating to the proposed EUR350 million senior secured notes due 2022 to be issued by EC Finance plc and affirmed the B3 instrument rating on the outstanding EUR600 million senior unsecured notes due 2022 issued by Europcar Group S.A. (Europcar or the company). Concurrently, Moody's has affirmed Europcar's corporate family rating (CFR) of B1, and the probability of default rating (PDR) of B1-PD. The outlook on all ratings is stable.

The proceeds from the senior secured notes will refinance the existing EUR350 million senior secured notes due 2021 while the proceeds from the proposed EUR600 senior unsecured notes will be used to repay drawn amount under the EUR500 million revolving credit facility (RCF) due 2022 (unrated) done in connection with the acquisition of Buchbinder, to partially finance the acquisition of Goldcar by cancelling the bridge financing put in place for the acquisition of Car Rentals Parentco, S.L.U. (Goldcar) (B1, Stable), and to pay transaction fees.

Upon completion of the Goldcar's acquisition, expected by year end, Europcar Groupe S.A. will assume the senior unsecured notes from Europcar Drive DAC.

Moody's will withdraw the B2 instrument rating on the outstanding EUR350 million senior secured notes due 2021 issued by EC Finance plc once repaid with the proceeds from the new senior secured notes.

Moody's issues provisional ratings in advance of the final sale of securities. Upon closing of the transaction and a conclusive review of the final documentation, Moody's will endeavour to assign definitive ratings. A definitive rating may differ from a provisional rating.

RATINGS RATIONALE

The proceeds of the new issuance will be mainly used to finance the acquisition of Goldcar by cancelling the EUR440 million of bridge financing that was put in place in June 2017 for the acquisition of the leading Spanish low cost car rental operator Goldcar and to repay EUR120 million of drawn RCF used for the acquisition of Buchbinder, a German car rental operator active in the low cost and in the vans and trucks segments acquired in May 2017. For the last twelve months to June 2017, pro forma for the proposed new issuance and the acquisitions, Moody's estimates that the company's gross leverage as adjusted by Moody's would increase to 5.0x from 4.7x pre-transactions. Moody's expects pro-forma gross leverage to decline towards 4.3-4.4x by December 2017.

We consider the increase in leverage a credit negative, however this is partially offset by the strengthening of Europcar's business profile as the leading European car rental operator and into the fast growing leisure low cost segment. The current rating is also supported by the good organic performance of Europcar during the first half of 2017 and the expectation that the company will continue to deliver revenue and EBITDA growth driven by cost savings initiatives following the acceleration of the restructuring plan with reorganization of its German operations. While M&A transactions have been consistent with the company's 2020 plan, any further acquisition that would re-leverage the company above current levels will likely put immediate pressure on the ratings.

The B1 CFR reflects Europcar's (1) exposure to the cyclical and highly competitive European car rental sector; (2) heavy reliance on capital market access to fund its seasonal fleet purchases; (3) moderate scale, relative to its direct peers, with limited operations outside of Europe; and (4) regulatory risks.

However, these factors are mitigated by (1) Moody's continued expectation of a moderate but relatively stable growth of the European car rental market of 2-3% over the next 3 years, (2) the company's strong brand and market position with a well-balanced revenue mix between leisure and business customers, (3) strengthening of the company's business profile as the leading car rental provider in Europe following recent acquisitions, (4) protection of the fleet from residual value risk, as evidenced by the current high proportion (approximately 93% of the company's fleet in units operated in 2016) of vehicles being acquired under buy-back agreements.

Moody's expects the liquidity profile to remain adequate, further supported by an undrawn EUR500 million RCF post transaction.

STRUCTURAL CONSIDERATIONS

For the purpose of the Loss Given Default (LGD) assessment, the securitisation and the local fleet financing facilities have been excluded as they have been considered to be self-liquidating in the event of a default. In addition these facilities have ring-fenced security over the fleet assets but do not have a claim one the operating businesses. As such, we have assumed a 35% recovery rate for the remaining financial obligations.

The B3 instrument ratings on the EUR600 million senior unsecured notes due 2022 and the new EUR600 million senior unsecured notes due 2024 reflect their relatively weaker security package and/or the absence of guarantees from operating subsidiaries compared with Europcar's other debt facilities, including the EUR500 million RCF due 2022 and the (P)B1 new EUR350 million senior secured notes due 2022. The new senior secured notes benefit from guarantees by Europcar International S.A.S.U. and Europcar Group S.A. while the RCF benefits from share pledges, as well as guarantees, by the majority of Europcar's operating entities. Moody's notes that a payment default under certain master operating leases entered with fleetcos in relation to the SARF could trigger a cross default under the RCF.

The company has two different intercreditor agreements (ICAs): an ICA which regulates fleet entities and their fleet financing debt and a corporate ICA which regulates opcos and the corporate debt such as RCF and senior unsecured notes.

In regards to priority of payments among the fleetcos, the new senior secured notes rank junior relative to sizeable fleet debt such as the Senior Asset Revolving Facility (SARF). The SARF has a first priority ranking on some fleet assets and receivables under buy-back agreements while the senior secured notes have second priority interest on same fleet assets and receivables.

The instrument ratings on the new senior secured notes is based on the assumption that the current bridge loan to fleet financing in place for Goldcar's acquisition will be integrated within Europcar's securitization programme in the six months following completion of the acquisition.

OUTLOOK

The stable outlook reflects Moody's expectation that Europcar will experience continued top line growth over the rating horizon in the context of a more favourable macro-economic environment. The outlook also reflects the expectation that the company will be able to integrate the recently acquired businesses and that leverage will gradually decline towards 4.0x.

WHAT COULD CHANGE THE RATINGS UP

Upward rating pressure could develop if adjusted leverage decreases to below 3.5x at year-end and EBITDA/Interest increases above 4.5x on a sustainable basis, and the company generates positive free cash flow and maintains a good liquidity profile.

WHAT COULD CHANGE THE RATINGS DOWN

On the other hand, negative pressure could arise if adjusted leverage trends towards 4.5x at year-end, EBITDA/Interest decreases to below 3.25x, the liquidity position weakens, and/or the company adopts a more aggressive financial policy.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings 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.

CORPORATE PROFILE

Headquartered in Paris, France, Europcar Groupe S.A. (Europcar or the company) is the European leader in car rental services, providing short- to medium-term rentals of passenger vehicles and light trucks to corporate, leisure and replacement clients. Founded in 1949, Europcar has a global presence in over 140 countries and employs ca. 6,000 staff. Europcar operates in five main markets: Germany, the UK, France, Italy, and Spain with operations also in Portugal, Belgium, Australia and New Zealand. In FY 2016, Europcar generated total revenue of EUR2.15 billion. In 2016, pro-forma for the recent announced acquisitions of Goldcar and Buchbinder, the company would have reported total revenue of EUR2.6 billion.

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.

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.

Matteo Versiglioni
Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Peter Firth
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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