On Oct. 12, 2009, Standard & Poor's Ratings Services raised its long-term ratings on Parsippany, N.J.-based car renter Avis Budget Group Inc., including the corporate credit rating, to 'B-' from 'CCC+'. The outlook is positive. In addition, we also raised our recovery rating on Avis Budget's $1.9 billion corporate credit facility to '3' from '4', indicating meaningful (50 percent-70 percent) recovery of principal in a default scenario.
The rating revision primarily reflects improved liquidity after a series of liquidity-raising initiatives the company pursued over the last several months (totaling $1.5 billion), an improvement in operating performance, and an improving used car market. In addition, the June-July 2009 bankruptcies of General Motors and Chrysler, an area of previous concern, have minimally affected Avis Budget and other car renters. The recovery rating change for Avis Budget's senior secured debt reflects our assessment of the automotive environment and the general, although modest, improvement in leisure travel. In particular, the significant improvement in the market for used vehicles since first-quarter 2009, where Avis Budget disposes of an increasing proportion of vehicles ("risk" vehicles, which automaker buyback agreements do not cover), and the general improvement in the financial condition of the major automakers, who support Avis Budget's program vehicles (those subject to the buybacks), have led Standard & Poor's to assume modestly higher valuations in assessing Avis Budget's recovery prospects in a payment default scenario. This results in an improved recovery given default.
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