Moody's Investors Service said it has changed the rating outlook for Avis Budget Car Rental LLC to negative from stable, citing concerns that purchases under the newly authorized repurchase program, combined with the potential exercise of an option to increase ownership in Carey International could occur as the US economy is weakening, Fobes reports.
Moody's said the US-based company's corporate family rating is affirmed at 'Ba2' and its speculative grade liquidity rating remains 'SGL-2', reflecting expectation that it has adequate resources to cover funding needs during the next twelve months.
Moody's noted that Avis' operating performance and credit metrics have been moderately, but consistently, below the rating agency's expectations. Also, the pace of necessary improvement could be hampered by share repurchases, increased investment in Carey, and a weak US economy, Moody's said.
The chief drivers of Avis' below-expectation performance have been a significant rise in rental fleet costs, a difficult pricing environment in the leisure car-rental sector, and a downturn in the US housing market, which has eroded demand in the truck rental business.
According to Fobes, in response to these operational challenges, Avis has implemented several cost cutting and revenue enhancement programs. Though the company has achieved a notable degree of success with some of these programs, the benefits have not been sufficient enough to offset rising fleet costs and pricing pressure, Moody's said.
