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29 Jul 2010
Approximately $3 billion of debt affected
New York, July 29, 2010 -- Moody's Investors Service is maintaining its current B2 Corporate
Family Rating and Positive Outlook for Avis Budget Group, Inc.
(Avis) following the company's announcement that it has submitted
a $1.3 billion offer to acquire Dollar Thrifty Automotive
Group, Inc. (Dollar).
The maintenance of Avis' current ratings and outlook recognizes
that the offer is not definitive and has not been accepted by Dollar.
Under current terms of the existing agreement, Hertz Corporation
would acquire Dollar for $1.1 billion and has the right
to counter the Avis' offer. Should the Avis purchase of Dollar
be consummated, Avis' positive rating outlook might not be
sustained as a result of an increase in acquisition related debt.
However, if the transaction does not proceed, Avis'
improving operating performance and more favorable industry fundamentals
would continue to support a positive outlook. Avis' positive
outlook reflects the benefits from the cost cutting initiatives that the
company has undertaken and from improving fundamentals within the daily
rental market. These favorable industry fundamentals include:
industry-wide fleet size that is being managed in line with demand,
an outlook for used car prices to remain strong through 2011, strengthening
daily rental pricing, and improved availability of ABS financing
to support fleet purchases. In the absence of a Dollar acquisition
and the related increase in Avis' corporate debt, these factors
would continue to support a possible improvement in Avis' rating.
Nonetheless, we believe that the acquisition of Dollar by either
Avis or Hertz would represent an additional positive for industry fundamentals.
It would result in the industry consisting of three main players (Avis,
Hertz and Enterprise) and would likely support greater stability with
respect to the industry's overall fleet size, used car values,
and vehicle rental rates.
If Avis' $1.3 billion offer for Dollar is successful
the company would likely achieve considerable cost synergies as a result
of the acquisition, and improve its competitive position in the
value segment of the US automobile daily rental sector. However,
Moody's estimates that it would take 12 to 18 months for Avis to
fully realizing these potential savings. In the meantime,
the company's already high level of corporate debt (approximately
$2.1 billion compared with $4.6 billion in
fleet debt), would increase considerably. A positive outlook
may not be sustainable given an increase in corporate debt and the time
frame necessary to achieve the anticipated synergies.
The last rating action on Avis was a change in the outlook to positive
from negative on February 17, 2010.
The principal methodology used in rating Avis was Moody's Global Equipment
and Automobile Rental Methodology, published in August 2007 and
available on www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
Avis Budget Car Rental LLC, headquartered in Parsippany, NJ,
is a leading competitor in the US on-airport car rental sector.
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
J. Bruce Clark
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's maintains Avis' B2 rating and positive outlook.
No Related Data.
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