DBRS Confirms Enterprise Rent-A-Car Issuer Rating at A (low)

DBRS has today confirmed the issuer rating of St. Louis, MO–based, Enterprise Rent-A-Car Company (ERAC or the Company) at A (low). The trend is Stable. The rating is based on the Company’s strong market position and significant brand strength in the local market. The less cyclical nature of this business has allowed the Company to produce strong and very predictable revenues, income and cash flows throughout various business and economic environments. Also factored in the ratings is the Company’s proven ability to manage its fleet through the normal and stressed business cycles. Although the Company retains the residual risk on the vast majority of its rental fleet, it has demonstrated its ability to dispose of these vehicles at favorable terms, even during times of significant weakness in the used car market. This extensive history of successfully managing the residual risk of its fleet is a significant rating advantage over its competitors, which have historically not taken on large amounts of residual value risk.

Ample liquidity and capitalization provide the foundation for a sound balance sheet, which is reflected in the Company’s rating. Although the Company’s exposure to financially challenged U.S. automotive manufacturers is considerably lower than that of its peer group, a significant amount of the fleet is sourced from the U.S. original equipment manufacturers (OEMs). DBRS believes that any significant decrease in incentives from one or more of the OEMs or decreased ability to produce automobiles can have a negative impact on ERAC’s profitability. Although DBRS considers ERAC’s history of impressive fleet management as a rating positive, the Company does have significant exposure to the used vehicle market, which can be volatile. Prolonged pressure on used vehicle values can lead to deterioration of ERAC’s profitability margins. Lastly, the private nature of the Company and the perception of lack of transparency may limit the firm’s ability to raise capital should market liquidity falter.

Enterprise Rent-A-Car Company’s primary business is the renting of replacement vehicles in the local market throughout the United States, with smaller operations in Canada, the United Kingdom, Germany and Ireland. Enterprise is owned by The Crawford Group Inc., which is primarily owned by members of the Taylor family. The debt of ERAC Canada Finance Ltd. is unconditionally guaranteed by Enterprise Rent-A-Car Company.

Note:
Issuer ratings apply to all general senior unsecured obligations of the issuer in question.

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