DBRS Confirms Enterprise Holdings, Inc. at A (low), Trend Stable

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

The rating confirmation considers the Company’s leading market position in the home city and airport vehicle rental segments, its solid revenue generation ability, and its sound, well-managed liquidity profile. Moreover, the ratings consider the Company’s proven ability to manage both corporate and fleet costs, which is particularly relevant given uncertainties as to the strength of the ongoing economic recovery.

The Company’s strong earnings ability is considered in the ratings. Illustrating, the resiliency of earnings, Enterprise has remained profitable in every quarter through the current business cycle. Further, earnings continue to enjoy positive momentum, benefiting from the more favorable operating environment. Indeed, the Company recently reported the second consecutive quarter of year-on-year revenue growth as transaction volumes show signs of recovering modestly and the used-vehicle market remains strong. Importantly, the third quarter ending April 30, 2010, was Enterprise’s most profitable fiscal third quarter in its history.

The ratings consider Enterprise’s solid fleet management acumen. This proficiency has allowed the Company to navigate through the seasonality of the daily rental business and the affects of the business cycle, with minimal impact. As an example, despite unprecedented weakness in the used-vehicle markets in late 2008 and early 2009, and a significant reduction in travel volumes, Enterprise remained profitable. This is not only a testament of the earnings generating ability but speaks to both the flexibility of the business model and the expertise of the management team. Furthermore, DBRS views the success in integrating the Vanguard acquisition as further evidence of Enterprise’s fleet management aptness as well as the strength of the Company’s management team.

Importantly, Enterprise’s strong brand names underpin the franchise, thereby supporting the ratings. Enterprise maintains a solid leading market position in the home city and insurance replacement rental segment. Importantly, the business provides a source of solid and rather predictable earnings. Further, the franchise was significantly enhanced by the 2007 acquisition of the National Rental Car (National) and Alamo Rental (Alamo) car businesses. Back in 2007, DBRS viewed this acquisition as a company changing event as it expanded Enterprise’s presence in the important on-airport segment, a business line in which the Company was under represented. As discussed above, the successful integration of this business and benefits gained from this acquisition considerably improved the overall business profile. Following the merger, the combined companies maintain the leading market position in the airport vehicle rental marketplace. DBRS sees Enterprise’s tiered business approach via the three distinct brands, serving all segments of the marketplace, as a competitive advantage over its daily rental peers.

DBRS views Enterprise’s conservative approach to liquidity and capital as a distinguishable factor supporting the rating. Liquidity and funding remain solid and well-managed. The Company’s liquidity position is buttressed by a $2.5 billion committed bank facility and acceptable levels of unrestricted cash. The Company’s debt burden has been reduced over the past two years as Enterprise makes use of its noteworthy free operating cash flow to reduce outstanding debt. At April 30, 2010, outstanding debt declined 16% year-on-year and 38% from its July 2008 peak. The smaller fleet size also contributed to this reduction. Moreover, debt maturities remain well-laddered with approximately 60% maturing in more than five years. As expected, leverage has declined from the elevated levels owed to the Vanguard acquisition. Notably, leverage remains well-below industry peers, with debt-to-tangible equity of 1.5x at April 30, 2010. Tangible equity remains sufficient and has consistently increased as a percentage of tangible assets over the past two years.

The trend is Stable. DBRS anticipates that earnings will continue to improve as FY 2011 progresses, given DBRS’s expectation of continued improvement in the operating environment and DBRS’s expectations that the industry fundamentals will remain sound. Moreover, recent indications in the stabilization in rental transaction volumes, albeit, at low levels to historic averages, and improved pricing will enhance profitability.

St. Louis, MO-based Enterprise Holdings, Inc. is the largest, by market share, provider of daily rental vehicles in both the home city and on-airport rental segments 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.

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

The applicable rating methodology is Rating Finance Companies Operating in the United States, which can be found on our website under methodologies.

This is a Corporate (Financial Institutions) rating.