January 2, 2013 / 5:15 PM / in 5 years

TEXT - S&P says Avis rating unaffected by acquisition

Jan 2 - Standard & Poor’s Ratings Services said today that its ratings and outlook on Parsippany, N.J.-based car renter Avis Budget Group Inc. (B+/Stable/-) are unaffected by the company’s announcement that it has agreed to acquire car sharer Zipcar Inc. (not rated) for approximately $500 million, primarily using debt. Zipcar’s hourly car sharing, which would be a new business for Avis Budget, generates lower margins than Avis Budget’s daily car rental business. However, the company expects to realize $50 million to $70 million in annual synergies, including $20 million in the first year after the acquisition. This should be possible given Avis Budget’s larger vehicle purchasing presence. We expect the acquisition to close in the spring of 2013, after Avis Budget receives the necessary regulatory approvals. Based on the incremental debt and some synergies, we expect the company’s credit metrics to weaken only modestly and to remain within our assumptions for the rating. For the 12 months ended Sept. 30, 2012, funds from operations to debt was 19% and debt to EBITDA was 5.1x. The ratings on Avis Budget reflect the company’s aggressive financial profile, the price competitive and cyclical nature of on-airport car rentals, and a significant amount of secured assets. The ratings also incorporate the company’s position as one of the largest global car rental companies, the relatively stable cash flow the business generates, and our expectation that Avis Budget’s operating performance will continue to improve.

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