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Rating Action:

Moody's rates Europcar's senior secured notes (P)B2, changes outlook to stable

Global Credit Research - 22 Jun 2010

Approximately EUR250 million debt rated

Frankfurt, June 22, 2010 -- Moody's today assigned a provisional (P)B2 rating (LGD 4, 58%) to the issuance of up to EUR250 million senior secured notes due in 2017 to be issued by EC Finance plc, a newly formed special purpose vehicle owned by a charitable trust and guaranteed by Europcar International S.A.S.U., a subsidiary of Europcar Groupe S.A. ("Europcar" or "the company"). At the same time, Moody's affirmed Europcar Groupe S.A.'s B2 corporate family rating (CFR) and probability of default rating (PDR), the B3 rating of the company's senior subordinated secured notes and the Caa1 rating of its senior subordinated unsecured notes. The outlook was changed from negative to stable.

"The outlook change to stable reflects the recent stabilization of Europcar's performance and the expectation of more favorable market conditions in the European rental market which together with benefits of cost reduction activities should support the generation of credit metrics more in line with the B2 rating category going forward", says Christian Hendker, Moody's lead analyst for Europcar. "The outlook change to stable furthermore considers the progress in addressing refinancing challenges of Europcar's fleet debt, as the proceeds of the new senior secured notes together with a new senior asset revolving facility will be applied to reduce outstanding fleet debt under a bridge to asset lending facility which matures in 2011", Mr. Hendker continues.

The outlook assumes that two pronged refinancing plan constituting of the new rated bond and a bank facility will be executed as planned. Failure in timely completion could threaten the outlook. The proceeds of the new EUR250 million senior secured notes will be released from an escrow account subject to certain conditions, particularly the concurrent refinancing of a EUR1.8 billion bridge to asset facility which matures in 2011 with a new senior asset revolving credit facility of around EUR1.3 billion due in 2014, which is contingent upon the successful issuance of the new notes, in addition to other conditions. The new senior asset revolving credit facility may be increased up to a maximum amount of EUR1.7 billion upon the accession of new lenders.

The proceeds of the notes will be invested into a loan issued by the special purpose entity Securitifleet Holding Sarl, a holding company of various Securitifleet subsidiary companies, whose primary function is the purchase and ownership of most of Europcar's rental fleet, which are leased to a number of Europcar's operating companies. The lease rent each Securitifleet company receives from operating companies and from the proceeds of the sale-back of vehicles to manufacturers are applied to repay principal and interests.

The proceeds of the EUR250 million senior secured notes, together with drawings under a new senior asset revolving facility with a commitment of EUR1.3 billion due in 2014 and issued at the level of Securitifleet Holding Sarl, will be advanced to various Securitifleet subsidiaries to repay the outstandings under the existing bridge to asset facility.

The new senior secured notes will benefit from a senior unsecured guarantee by the holding Europcar International S.A.S.U., and will benefit from (i) a first ranking pledge over the loans granted to Securitifleet Sarl, and (ii) a second ranking pledge over loan receivables arising from the advances to various Securitifleet companies, junior to the claims of the new senior asset revolving credit facility. Therefore the notes indirectly benefit from second ranking pledge on fleet assets and receivables held by Securitifleet subsidiaries, which value is protected by a loan to value covenant.

The B2 rating outcome for the senior secured notes reflects its structural superior positioning as well as its relatively strong security package compared to the outstanding subordinated secured notes (rated B3) and the outstanding subordinated unsecured notes (rated Caa1) both issued at the level of the holding company Europcar Groupe S.A. The instrument ranks junior relative to sizeable senior asset revolving credit facility, as the new notes are only secured on a second-lien basis on some fleet assets. In addition, the new senior secured notes rank junior relative to the EUR350 million revolving credit facility, which benefits from a relatively stronger collateral package, considering its first-lien collateral on bank accounts, other fleet receivables, trademarks and share pledges, as well as guarantees by the majority of Europcar's operating entities.

The affirmation of the B2 CFR and PDR with an outlook change to stable reflects a gradually improved performance, supported by significant fleet adjustments in line with lower demand, cost structure improvements but also a more favorable pricing power which we expected to be sufficient to recover further inflating fleet holding costs which should enable Europcar to generate metrics in line with the B2 rating category going forward. While Moody's however notes that following the refinancing interest rates will rise, adding pressure on the recovery of interest coverage ratios going forward and requiring constant operating performance improvements.

The stable rating outlook is based on the expectation that the operating performance will further recover, reflected in an EBIT-to-Interest Coverage ratio above 1.0x, and an improved Debt to EBITDA below 5.0x. At the same time, the outlook change to stable reflects the expected refinancing of fleet debt at competitive conditions, as outlined in the proposed transaction.

Moody's could downgrade the ratings over the next quarters if Europcar cannot mitigate the impact of lower volumes on credit metrics, as evidenced by the EBIT to interest ratio remaining below 1.0x, if debt to EBITDA does not remain below 6.0x (as adjusted by Moody's and impacted by seasonality), a weakening of the solid liquidity cushion or fundamental changes in fleet purchase conditions.

Moody's could upgrade the ratings if Europcar returns to a track record of growth of operating performance and credit metrics improvements, as evidenced by EBIT to interest above 1.3x for a sustained period or if debt to EBITDA improves towards 5.0x.

Moody's issues provisional ratings in advance of the final sale of securities and these ratings reflect Moody's preliminary credit opinion regarding the transaction only. Upon a conclusive review of the final documentation, Moody's will endeavour to assign a definitive rating to the notes. A definitive rating may differ from a provisional rating.

Assignments:

..Issuer: EC Finance plc

....Senior Secured Regular Bond/Debenture, Assigned (P)B2, LGD 4, 58%

Outlook Actions:

..Issuer: Europcar Groupe S.A.

....Outlook, Changed To Stable From Negative

LGD Assessment:

..Issuer: Europcar Groupe S.A.

....Subordinate Regular Bond/Debenture, rated Caa1, LGD Assessment changed to LGD6, 95% from LGD6, 92%

....Senior Subordinated Regular Bond/Debenture, rated B3, LGD Assessment changed to LGD5, 77% from LGD4, 69%

The last rating action was on 02 Dec 2008, when Moody's downgraded Europcar's CFR and PDR to B2 from B1 with a negative outlook.

The principal methodology used in rating Europcar 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.

Headquartered in Paris, France, Europcar is one of the leading European rental car companies with reported sales of EUR1.9 billion in 2009.

Paris
Eric de Bodard
Managing Director
Corporate Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Frankfurt
Christian Hendker, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's rates Europcar's senior secured notes (P)B2, changes outlook to stable
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