Morningstar DBRS Confirms Enterprise Holdings, Inc.'s Long-Term Issuer Rating at "A," Trend Remains Stable

DBRS, Inc. (Morningstar DBRS) confirmed the credit ratings of Enterprise Holdings, Inc. (Enterprise or the Company) and its related entity ERAC Canada Finance Company, including its Long-Term Issuer Rating of "A". The trend for all credit ratings is Stable. The Company's Intrinsic Assessment (IA) is "A," while its Support Assessment is SA3, resulting in Enterprise's final credit ratings being equal with its IA. ERAC Canada Finance Company's credit ratings reflect the guarantee from Enterprise and as a result are equalized with the credit ratings of the Company.

KEY CREDIT RATING CONSIDERATIONS
Enterprise's credit ratings reflect its top-tier vehicle rental franchise underpinned by its deeply rooted home-city business and its global on-airport business. The Company's earnings generation is solid and resilient. Revenues for the first half of fiscal year 2025 (1H FY2025) and fiscal year (FY) 2024, both increased moderately year-on-year (YoY) primarily due to higher average revenues per vehicle. Meanwhile, vehicle expense for both periods increased due to lower gains on used vehicle sales and higher average depreciation, and higher average cost per unit in FY 2024. Overall, higher expenses outpaced revenue growth resulting in a decline in earnings in 1H FY2025 and FY 2024 YoY. However, the pace of expense growth moderated in 1H FY2025 leading to a more moderate YoY reduction in earnings. Enterprise maintains a solid risk profile that is well-managed and underpinned by its conservative risk culture and strong fleet management platform. Funding is comprised of unsecured borrowings and liquidity is ample. With an unsecured funding base, Enterprise's vehicle assets are unencumbered providing it with a significant degree of financial flexibility should it be necessary during periods of economic stress. Capitalization is sound and reflects a disciplined approach to dividend payouts and sound retention levels.

The Stable trend reflects our view that Enterprise's credit fundamentals will remain sound going forward. However, downside risks include the potential for tariffs and trade disputes to negatively impact the economy, leisure and commercial travel patterns, as well as drive up new vehicle prices.

CREDIT RATING DRIVERS
A sustained increase in earnings or improved international revenue diversification, while maintaining strong credit fundamentals, would lead to an upgrade of the credit ratings. Conversely, a notable weakening market position, particularly in the Company's home-city business, missteps in fleet management leading to prolonged pressure on earnings, or a significant increase in leverage, would lead to a downgrade of the credit ratings.

CREDIT RATING RATIONALE

Franchise Building Block (BB) Assessment: Strong
The Company's strong global vehicle rental franchise is anchored by a seasoned senior management team with deep industry and institutional knowledge. The franchise enjoys considerable brand recognition across its three brands. National Car Rental, Alamo Rent A Car, and Enterprise Rent-A-Car. Enterprise also maintains a modestly sized truck rental business. The Company maintains significant home-city and global on-airport businesses. The well-entrenched home-city franchise in the U.S. is underpinned by a leading insurance replacement business, which in our view is a key differentiator between Enterprise and its large sector peers, providing it with a solid competitive advantage. The Company's international business is extensive with corporate - operated and franchisee locations across roughly 100 countries.

Earnings Building Block (BB) Assessment: Strong / Good
Enterprise's earnings are resilient, underpinned by its top-tier insurance replacement franchise that typically generates more consistent revenues than on-airport revenues which are more susceptible to seasonality and economic cyclicality. Meanwhile, the business model includes a variable expense base that also benefits earnings resiliency. Lower gains on used vehicle sales, higher depreciation expense and higher average cost per vehicle especially in FY 2024 drove higher vehicle expense and in turn total expenses which outpaced revenue growth resulting in lower year-on-year but still sound earnings in both 1H FY2025, and FY 2024. We note that the higher revenues in 1H 2025 benefited from solid increases in leisure and commercial rental days across both the Home City and Airport businesses. Going forward we anticipate firming used vehicle values to benefit operating results but that headwinds from higher new unit prices and auto parts to result in rising vehicle expenses.

Risk Building Block (BB) Assessment: Good
The Company's risk position is sound, reflecting its strong fleet management platform and conservative risk culture. We view operational risk as a key risk, given Enterprise's substantial scale of operations which includes 9.500 global locations, and a large technology platform which anchors its fleet management and reservation systems. Overall, we view operational risk to be well-managed, as the Company has not reported a material operational issue over the last few years. Meanwhile, another key risk of the Company is residual value risk, which has been soundly managed through various economic cycles, reflecting its conservative depreciation policy levels and strong fleet management capabilities.

Funding and Liquidity Building Block (BB) Assessment: Good / Moderate
Funding which is comprised of unsecured wholesale borrowings, is appropriately diversified by currency and duration. Liquidity is ample and soundly managed, consisting of cash, availability under its committed credit facilities, and strong cash flows from operations.

Capitalization Building Block (BB) Assessment: Good
Capitalization is sound given its resilient earnings generation capacity, disciplined approach with respect to dividend payouts, and sound capital retention levels. Lastly, Enterprise's modest leverage ratios are supportive of the Company's credit ratings.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS   
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781

Notes:
All figures are in US dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Non-Bank Financial Institutions (November 19, 2024) https://dbrs.morningstar.com/research/443208. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

The following methodology has also been applied:

Morningstar DBRS Global Corporate Criteria (February 03, 2025)
https://dbrs.morningstar.com/research/447186

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The primary sources of information used for these credit ratings include Morningstar, Inc. and Company documents.

Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings was of satisfactory quality.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to our Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of our website.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS's trends and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com.

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