Approximatley $350 million of debt affected
New York, April 19, 2011 -- Moody's Investors Service raised Dollar Thrifty Automotive Group,
Inc's Corporate Family Rating and Probability of Default Rating
to B2 from B3 and also raised the rating of the company's secured
term loan and credit facility to B1 from B2. The Speculative Grade
Liquidity rating is SGL-3 and the outlook is positive.
The upgrade reflects Dollar's strong position in the value segment
of the US car rental industry, as well as the company's improving
credit metrics, competitive operating performance, and modest
level of corporate debt. The rating action is also supported by
favorable industry fundamentals that include industry-wide fleet
size that is being maintained at a moderate level relative to demand and
strong used car prices.
The positive outlook reflects the possibility for further improvement
in the rating if Dollar can maintain strong operating performance relative
to peers, continue to operate with modest levels of corporate debt,
and manage shareholder distribution initiatives in line with earning and
free cash generation.
The rating action and outlook reflect Moody's view of Dollar's
standalone credit profile and do not reflect the potential effect of an
acquisition of Dollar by Avis Budget Group, Inc.(B1/stable).
Avis has an outstanding offer to acquire Dollar and the companies are
pursuing FTC approval to determine whether a transaction could be undertaken.
An acquisition by Avis would likely have neutral-to-positive
implications for Dollar's rating.
Dollar has a highly competitive position in the value segment of the US
car rental sector. During 2010 this position enabled the company
to generate debt/EBITDA of 2.6x, EBIT/interest of 2.4x
and an EBIT margin of 17.5% (excluding gains on disposals).
These metrics are record levels for Dollar and they compare well with
those of Avis and Hertz Corporation (B1/stable). Notwithstanding
its relatively small size (with approximately 12.5% share
of the US on-airport market) Dollar maintains a competitive operating
model. However, we believe that its concentration in the
leisure segment is a potential source of risk during economic downturns.
An additional strength is Dollar's relatively modest amount of corporate
debt -- only $145 million. This represents only 10.5%
of total unadjusted debt -- a level that is significantly below that
of Avis and Hertz. Moody's notes, however, that
Dollar's board has authorized a $100 million share repurchase
program and that pressure on the company to undertake aggressive distributions
to shareholders could increase if a sale of Dollar to Avis is not consummated.
Any upward movement in Dollar's rating would be dependent upon shareholder
distributions remaining in line with free cash generation and earnings,
and upon corporate debt remaining a modest portion of the capital structure.
The principal focus of key players in the car rental industry is on lowering
operating costs, growing ancillary revenues, improving utilization
rates, and expanding return measures. Importantly,
the rental industry has remained disciplined in terms of maintaining fleet
size in line with demand. Although pricing within the industry
will remain competitive, these industry fundamentals moderate the
risk that any player will look to grow market share by lowering prices.
This is an important positive for the overall pricing environment.
We expect that used car prices will remain strong due to the healthier
operating models the Detroit-3 auto manufactures have embraced
since the 2009 restructuring of the industry. This operating model
focuses on managing production levels in line with retail demand rather
than managing production to cover a high fixed cost structure.
Used car prices will also benefit from the shortage of new cars available
from Japanese manufacturers.
Dollar's liquidity profile and SGL-3 Speculative Grade Liquidity
rating are supported by the company's unrestricted cash position
of approximately $563 million and $230 million in borrowing
capacity available under a revolving credit facility that matures in 2013.
The company has minimal amounts of non-fleet debt maturing during
the coming twelve months. Although the ABS market remains available
to provide refunding for future fleet purchases, the heavy reliance
of Dollar and most of its peers on continuing annual access to considerable
amounts of ABS funding constrains the liquidity profile and Speculative
Grade Liquidity rating.
Dollar's rating could be considered for upgrade during the next
twelve to eighteen months if the company's operating performance,
along with any shareholder distribution initiatives, will enable
it to continue to strengthen its credit metrics, including:
debt/EBITDA under 3.0x and EBIT/interest over 2.0x.
A upgrade would also require the maintenance of a sound liquidity profile.
Pressure on the outlook and rating would most likely result if the company
were to adopt a more aggressive shareholder distribution strategy.
Such a strategy could result in pressure on the rating if it contributed
to metrics of the following levels: debt /EBITDA approaching 3.5x
and EBIT/interest below 1.5x.
The last rating action for Dollar was a change in the outlook to positive
on April 28, 2010.
The principal methodology used in rating Dollar Thrifty Automotive Group,
Inc was the Global Equipment and Automobile Rental Industry Methodology,
published December 2010. Other methodologies used include Loss
Given Default for Speculative Grade Issuers in the US, Canada,
and EMEA, published June 2009.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
J. Bruce Clark
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's raised Dollar Thrifty Corporate Family Rating to B2; outlook is positive
250 Greenwich Street
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