(The following statement was released by the rating agency)
NEW YORK, Oct 3 2- Standard & Poor's Ratings Services said today it affirmed its long-term ratings, including the triple-'B' corporate credit rating, on car rental company Hertz Corp. and removed them from CreditWatch, where they were placed Oct. 16, 2002. The 'A-2' commercial paper rating on the company, which was not on CreditWatch, is affirmed. The outlook is negative. Hertz is an indirect wholly owned subsidiary of Ford Motor Co. (BBB/Negative/A-2).
"Standard & Poor's determined that Hertz's stand-alone credit strength is sufficient to justify maintaining a triple-'B' corporate credit rating, despite the Oct. 25, 2002, downgrade of Ford to triple-'B' from triple-'B'-plus," said Standard & Poor's credit analyst Betsy Snyder. Hertz has previously been rated one notch below the rating of Ford because Ford does not guarantee Hertz's obligations and Hertz is not a core asset of Ford, although the parent is seen as a potential source of credit support.
The ratings on Park Ridge, N.J.-based Hertz Corp. reflect its solid competitive position in car rentals, and a fairly strong financial profile. Hertz, the largest car rental company in the world, participates primarily in the business and leisure rental segment of the car rental industry. This segment generates a significant portion of its revenues from transactions at airport locations. Even before the events of Sept. 11, 2001, this industry had been facing economic challenges. Transaction volumes and pricing had been negatively affected by the decline in airline traffic. This trend was exacerbated after the federal government halted airline operations for several days after the attacks, and the airlines subsequently reduced capacity by an average of 20%. As a result, two of Hertz's major competitors, ANC Rental Corp. (parent of Alamo Rent A Car and National Car Rental System) and Budget Group Inc. (parent of Budget Rent A Car), filed for Chapter 11 bankruptcy protection. All participants in the car rental industry have attempted to reduce costs, and reduced the size of their fleets.
In the intermediate term, the industry's earnings will be largely dependent on the return of airline passenger traffic. Nonetheless, the industry still enjoys strong cash flow due to substantial noncash depreciation charges in its expense structure, as well as good financial flexibility due to the highly liquid nature of the assets. Auto manufacturer buyback programs, common in the car rental industry, allow the rental companies to return vehicles at preset prices, providing a source of funding for new purchases. Through its Hertz Equipment Rental Corp. subsidiary, Hertz also operates one of the largest industrial and construction equipment renters in the U.S. This market has been depressed for several years due to industry overcapacity.
The outlook reflects the negative outlook of Ford, its parent. If ratings on Ford were to be lowered, ratings on Hertz would also be lowered, since Hertz, as a subsidiary of Ford, could not be rated higher than its parent. Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www2.standardandpoors.com; under Fixed Income in the left navigation bar, select Credit Ratings Actions.