Fitch: No Impact on Avis' Ratings Following Announcement to Acquire Zipcar
NEW YORK -- January 7, 2013
Fitch Ratings believes there is no impact on the ratings of Avis Budget Group,
Inc. (ABG) and its debt-issuing subsidiary Avis Budget Car Rental, LLC
following ABG's announcement on Jan. 2, 2013 of its intent to acquire the
outstanding shares of Zipcar, Inc. (ZIP) for $12.25 per share, totaling
approximately $500 million. A complete list of ratings appears at the bottom
of this release.
ABG has agreed to acquire ZIP, a leading car-sharing network, representing a
transaction value totaling approximately $500 million. ABG intends to finance
the purchase price primarily through incremental corporate debt borrowings.
The combination is expected to produce $50 million to $70 million in annual
synergies through lowering fleet costs, increasing utilization across the two
companies, and increased incremental revenues, which Fitch believes is
achievable given ABG's track record of managing operating leverage. The
acquisition is subject to approval by regulators and ZIP shareholders, and is
expected to be completed in the spring of 2013.
Fitch views the ZIP acquisition to be neutral to ABG's current ratings, as the
transaction is not expected to result in a significant increase in cash flow
leverage. On a pro forma basis, corporate debt-to-annualized adjusted EBITDA,
assuming $60 million of potential synergies, would increase approximately a
quarter turn from 3.6x to 3.9x as of Sept. 30, 2012. Net of cash, leverage is
expected to rise from 2.9x to 3.2x, which remains within ABG's articulated
leverage target of between 3x and 4x.
Fitch believes the acquisition is strategically complementary, as it expands
ABG's current daily and weekly car rentals to include ZIP's hourly product
offerings. In addition, Fitch expects ABG's standalone near-term operating
performance will improve, given the continued strength of the used vehicle
market and the company's efforts to optimize fleet utilization and operating
RATING DRIVERS AND SENSITIVITIES
Positive rating actions would be driven by ABG's ability to sustain
improvements in operating leverage and liquidity, maintain appropriate
capitalization and economic access to funding in the capital markets, and its
ability to achieve proposed synergies and manage expected integration costs.
Fitch would also view positively ABG's ability to manage net leverage, as
measured by net corporate debt-to-adjusted EBITDA below its articulated range
in the longer term.
Conversely, negative rating actions could result from a material deterioration
in revenue and cash flow generation resulting from declines in passenger
volumes, rental rates and used car values which impair ABG's access to
funding, liquidity, and/or capitalization. A meaningful and sustained increase
in net leverage over and above ABG's articulated range could also yield
negative rating actions.
Fitch currently has the following ratings:
Avis Budget Group, Inc.
--Long-term Issuer Default Rating (IDR) 'B+'.
Avis Budget Car Rental, LLC
--Long-term IDR 'B+';
--Secured term loan 'BB+/RR1';
--Senior secured debt 'BB+/RR1';
--Senior unsecured debt 'B+/RR4'.
The Rating Outlook is Positive.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012)
--'Recovery Ratings for Financial Institutions' (Aug. 15, 2012)
--'Finance & Leasing Companies Criteria' (Dec. 11, 2012).
Applicable Criteria and Related Research:
Finance and Leasing Companies Criteria
Recovery Ratings for Financial Institutions
Global Financial Institutions Rating Criteria
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
70 West Madison Street
Chicago, IL 60602
Mohak Rao, CFA
Brian Bertsch, +1-212-908-0549 (New York)
Press spacebar to pause and continue. Press esc to stop.