Fitch Assigns Issuer and Debt Ratings to Various Avis Entities
CHICAGO -- March 11, 2013
Fitch Ratings has assigned a long-term Issuer Default Rating (IDR) of 'B+' to
Avis Budget Finance PLC (Avis Budget Finance) and 'B+/RR4' ratings to Avis
Budget Finance's EUR250 million, 6% senior unsecured notes due March 2021. In
addition, Fitch has assigned 'BB+/RR1' ratings to Avis Budget Car Rental,
LLC's (ABCR) $900 million senior secured term loan maturing March 2019. Of the
proceeds, $200 million represents incremental issuance, while the remaining
$700 million will be used to refinance ABCR's existing senior secured term
loan maturing March 2019 at lower interest rates. The Rating Outlook for Avis
Budget Finance is positive.
KEY RATING DRIVERS
Avis Budget Finance is a wholly-owned, indirect subsidiary of Avis Budget
Group, Inc. (ABG, rated 'B+', Outlook Positive by Fitch). The 'B+' ratings of
Avis Budget Finance and its senior unsecured notes reflect the unconditional
guarantee provided by ABG (indirect parent), Avis Budget Holdings, LLC
(indirect parent) and ABCR (direct parent), and all current and future direct
and indirect domestic subsidiaries. The note ranks pari passu with all other
unsecured and senior indebtedness of the company. The Recovery Rating of 'RR4'
reflects average recovery prospects in a distressed scenario based upon
collateral coverage of unencumbered balance sheet assets on a pro forma basis
as of Dec. 31, 2012. The 'BB+/RR1' ratings assigned to the term loan reflect
outstanding recovery prospects for this class of debt upon liquidation in a
distressed scenario. The term loan is secured by pledges of all of the capital
stock of ABG's domestic subsidiaries and up to 66% of ABG's foreign
The proceeds of the note and incremental term loan issuance will be used to
finance ABG's acquisition of Zipcar, Inc. (ZIP), which was announced on Feb.
2, 2013. Fitch expects the incremental issuance will modestly increase ABG's
corporate leverage, and will have a marginal impact on ABG's overall credit
profile in the medium term. On a pro forma basis net of unrestricted cash,
corporate debt-to-full-year adjusted EBITDA is expected to increase from 2.9x
to 3.4x in 2012, excluding the effects of $60 million of potential midpoint
synergies associated with the acquisition. Including synergies, net corporate
leverage would have declined to 3.0x on a combined basis in 2012. Given ABG's
prior track record of managing operating leverage, Fitch believes the proposed
synergies are achievable.
SUBSIDIARY AND AFFILIATED COMPANY RATING DRIVERS AND SENSITIVITIES
Avis Budget Finance and ABCR are wholly-owned subsidiaries of ABG. Avis Budget
Finance's IDR is aligned with that of ABG because of the unconditional
guarantee provided by ABG and its various subsidiaries. Therefore, the ratings
are sensitive to the same factors that might drive a change in ABG's IDR.
RATING SENSITIVITIES - IDRS AND SENIOR DEBT
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 to
pre-acquisition levels, as measured by net corporate debt-to-adjusted EBITDA
below its articulated range of 3x-4x 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. The Recovery Ratings are also sensitive to changes in
the level of balance sheet assets and collateral values, which ultimately
impact the level of available asset coverage in a distressed scenario.
Fitch assigns the following ratings:
Avis Budget Car Rental, LLC
--Senior secured term loan 'BB+/RR1'.
Avis Budget Finance PLC
--Long-term IDR 'B+';
--Senior unsecured 'B+/RR4'.
The Rating Outlook is Positive.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);
--'Finance and Leasing Companies Criteria' (Dec. 11, 2012);
--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);
--'Recovery Ratings for Financial Institutions' (Aug. 15, 2012).
Applicable Criteria and Related Research
Rating FI Subsidiaries and Holding Companies
Recovery Ratings for Financial Institutions
Finance and Leasing Companies Criteria
Global Financial Institutions Rating Criteria
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Johann Juan, +1-312-368-3339
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
Mohak Rao, CFA, +1-212-908-0559
Nathan Flanders, +1-212-908-0827
Brian Bertsch, New York, +1-212-908-0549
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