Date of Release: 2005-02-07
Dominion Bond Rating Service (“DBRS”) has confirmed the rating of Enterprise Rent-A-Car Company (“Enterprise” or the “Company”) at A (low) as well as the ratings of the subsidiary company ERAC Canada Finance Ltd. at R-1 (low) and A (low). The trends of all ratings remain Stable.
Enterprise reported strong profitability for the most recent fiscal year ended July 2004 with net income increasing by 25%. The financial risk profile also continued to be favourable, with fixed-charges coverage increasing to 3.6 times from 2.9 times and cash flow-to-debt declining modestly but still strong at 0.51 times. The good results reflect stabilization in used car prices, fleet growth in both daily rental and fleet services, and stable utilization levels. In addition, lower net interest expense also contributed, due to a decrease in average outstanding indebtedness combined with a lower cost of funds. The disposal gain per vehicle rose sharply as compared to the prior year, a key improvement considering that Enterprise takes the residual risk on virtually its entire rental fleet. The Company has enjoyed strong organic growth, with the total number of rental cars increasing to over 600,000 and the leasing fleet rising to 135,000.
Competition continues to be intense, with competitors increasing their number of suburban locations and competing aggressively on price, creating pressure on margins. Enterprise competes using a somewhat unique staff model with an entrepreneurial focus, and establishing long-term relationships with insurance companies, auto dealers, and auto body shops. Enterprise also continues to expand its on-airport presence, with the number of locations now at about 180. However, overall, the on-airport operations have not yet grown to be a major part of the business, representing less than 10% of operations at present. The Company also has operations in Canada, the U.K., Ireland, and Germany, with this international segment representing about 9% of assets.
Enterprise is the parent company which unconditionally guarantees the debt of ERAC Canada Finance Ltd.
Note:
Issuer ratings apply to all general senior unsecured obligations of the issuer in question.
The full report providing additional analytical detail is available by clicking on the link below or by contacting us at info@dbrs.com.
| Issuer | Debt Rated | Rating Action | Rating | Trend | Notes | Published |
|---|---|---|---|---|---|---|
| ERAC Canada Finance Ltd. | Commercial Paper | Confirmed | R-1 (low) | Stb | 7 Feb 2005 | |
| Enterprise Rent-A-Car Company | Issuer Rating | Confirmed | A (low) | Stb | 7 Feb 2005 | |
| ERAC Canada Finance Ltd. | Senior Notes | Confirmed | A (low) | Stb | 7 Feb 2005 |
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