DBRS Confirms Enterprise Rent-A-Car Company at A (low)

Dominion Bond Rating Service (“DBRS”) has today confirmed the ratings of Enterprise Rent-A-Car Company (“Enterprise” or the “Company”) and the subsidiary company, ERAC Canada Finance Ltd., as indicated above.

Enterprise reported strong profitability for the fiscal year 2005, partly reflecting increased fleet size and higher margins realized on the disposal of vehicles. The Company takes the residual risk on virtually its entire car rental fleet, but has been consistently able to sell vehicles at above book value gains, even in soft markets. The financial risk profile also remained favourable, with cash flow-to-debt declining modestly to 0.48 times and fixed-charge coverage higher at 3.9 times.

Although focused on the U.S. local car rental market, Enterprise does have some degree of diversification, including fleet services, on-airport operations, as well as international businesses in the U.K., Germany, Ireland, and Canada. This latter segment remains small, and growing the business in foreign, often very competitive markets will be a challenge.

Challenges faced in North America include a troubled auto manufacturing industry, since it supplies vehicles for car rental companies, and a recent change in ownership of a major competitor (Hertz). However, Enterprise is not affiliated with any of the major auto manufacturers, which helps mitigate this risk somewhat, although vehicle costs are expected to increase in the near term, which may pressure earnings. The recent change in ownership of a very large competitor, Hertz, may become of more concern if the new owners decide to compete more aggressively in the local rental market.

Enterprise is the parent company that 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 under Related Research at the right of the screen or by contacting us at info@dbrs.com.

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