Fitch: Avis Budget Group's Acquisition of Avis Europe Does Not Affect Ratings

The credit ratings of Avis Budget Group, Inc. (ABG) and Avis Budget Car, Rental, LLC (ABC) are not affected by the proposed acquisition of Avis Europe, according to Fitch Ratings. Fitch currently rates ABG and ABC's long-term Issuer Default Ratings 'B+' with a Stable Rating Outlook.

Given the shared heritage, branding and infrastructure, Fitch believes the acquisition is a good and complementary strategic fit, strengthens the company's competitive position within the sector and adds diversity to the revenue stream. Also, Fitch thinks integration risks do not represent a material concern and views ABG's $30 million in estimated cost synergies as reasonable and achievable.

Fitch believes the cost to acquire Avis Europe is relatively high, however, proposed funding of the acquisition is not expected to constrain ABG's existing liquidity position or overall financial flexibility. ABG plans to fund the acquisition via $400 million of available cash balances, issuance of up to $250 million of common stock and the incurrence of $380 million of incremental debt from either committed existing facilities or new offerings.

Given the company's plan to fund the transaction, Fitch does not expect a substantial increase in overall leverage. Assuming Avis Europe's existing debt is refinanced, Fitch estimates, post-acquisition, pro forma corporate debt to corporate EBITDA will increase slightly to 6.0 times (x) from 5.8x, based on trailing 12 month EBITDA. However, Fitch believes leverage could decline over time with a continuation of stronger core operating performance and should acquisition synergies be achieved.

Fitch believes Avis Europe's approval of the transaction is highly likely as its majority shareholder and board of directors both have irrevocably consented to the proposed acquisition. Given the acquisition of Avis Europe, Fitch does not think that the acquisition of Dollar Thrifty is a priority for ABG. However, in the event ABG elects to pursue an acquisition of Dollar Thrifty, Fitch believes the cost to acquire Dollar Thrifty in addition to the added integration risks, would likely weaken ABG's overall financial profile and would likely result in a negative rating action or downgrade.

In addition, ratings could be pressured in the future by unanticipated declines in passenger travel and rental car demands, both domestically as well as now in Europe, which could significantly pressure corporate EBIDTA. Alternatively, sustained robust business demand that leads to further enhancements to operating margins, and subsequently reduced leveraged, could help bolster the firm's existing credit rating.

Based in Parsippany, NJ, Avis Budget Car Rental, LLC (ABC) is the debt-issuing subsidiary of Avis Budget Group, Inc. (ABG), and is one of the largest general use rental car companies in the world. ABC consists of two of the most recognized brands in the rental car industry; Avis and Budget. Avis is a leading supplier to the premium travel segment and Budget is considered a top brand in the value segment. ABG trades on the NYSE under the symbol CAR.

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