Date of Release: 2008-05-23

Enterprise Rent-A-Car

Confirms at A (low), Trend Stable

DBRS has today confirmed the ratings of Enterprise Rent-A-Car Company (ERAC or the Company), including its A (low) Issuer Rating. The trend is Stable.

The rating is based on the Company’s strong market position and significant brand strength in the local market/off-airport daily rental segment. The less cyclical nature of the off-airport business has allowed the Company to produce strong and predictable revenues, earnings and cash flows throughout various business and economic environments. Also factored into the ratings is the Company’s proven ability to manage its fleet through both normal and stressed business cycles, which is particularly relevant given the current weakened economic environment and the anticipated addition of the Alamo Rent-A-Car and National Car Rental businesses via the acquisition of Vanguard Car Rental USA Inc. (Vanguard).

Liquidity remains solid, despite market distress. Profitability remains acceptable; however, it has been impacted by higher vehicle costs due to decreased incentives from the original equipment manufacturers (OEMs), the weak used car market, and, a less-than-optimal fleet mix. Given the expected continued high per unit vehicle cost and the current U.S. economic environment, DBRS expects earnings will likely remain below recent record levels, but should, nonetheless, remain solid.

Although the Company’s exposure to the financially challenged U.S. automotive manufacturers is considerably lower than among most of its peer group, the reduced appetite of OEMs for selling fleet vehicles has had a noticeable impact on the financial performance of ERAC, as vehicle costs have increased over the past few years. The rating reflects the Company’s exposure to the used car markets as ERAC retains the residual risk on the vast majority (approximately 90%) of its rental fleet. Importantly, ERAC has demonstrated its ability to dispose of these vehicles at relatively 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 only recently taken on large amounts of residual value risk.

DBRS’s ratings also consider the increased leverage as the Company has increased its debt levels to effect the Vanguard acquisition. However, leverage remains well below its peer group. At the current rating level and given the Company’s current structure, which includes the size and composition of its balance sheet, DBRS has little tolerance for additional corporate debt or reduction in equity. Moreover, DBRS anticipates that the Vanguard businesses will be consolidated into ERAC, which DBRS views as a net positive factor, yet the weakened economic environment and the anticipated reduction in travel volume has somewhat tempered this view. Although ERAC has the institutional knowledge and a positive track record in managing its fleet, certain integration and business risks are present with the Vanguard acquisition.

St. Louis, MO-based 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. ERAC is owned by The Crawford Group, Inc., which is primarily owned by members of the Taylor family.

Note:
All figures are in U.S. dollars unless otherwise noted.

The full report providing additional analytical detail is available by clicking on the link below or by contacting us at info@dbrs.com.

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