(The following statement was released by the rating agency)
NEW YORK, Oct 31 - Standard & Poor's Ratings Services said today it assigned its preliminary 'BBB' rating to senior unsecured debt securities and preliminary 'BBB-' rating to senior and junior subordinated debt securities filed under Hertz Corp.'s $2.45 billion SEC Rule 415 shelf registration. At the same time, the ratings on these securities were placed on CreditWatch with negative implications. Standard & Poor's existing ratings on Hertz Corp., including the 'BBB/A-2' corporate credit ratings, remain on CreditWatch with negative implications, where they were placed on Oct. 21, 2003, following the CreditWatch placement of the ratings on Hertz's parent, Ford Motor Co. (BBB/Watch Neg/A-2).
"The ratings on Park Ridge, N.J.-based Hertz Corp. are equalized with the ratings on Ford," said Standard & Poor's credit analyst Betsy Snyder. "However, ratings also incorporate Hertz's strong competitive position in car rentals, and a fairly strong financial profile on a stand-alone basis," the analyst continued.
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. This industry has experienced economic challenges since 2001, with substantial recovery not expected in the intermediate term. Transaction volumes and pricing had been negatively affected by the decline in airline traffic, and these trends will likely continue into 2004. All participants in the car rental industry have attempted to reduce costs, and decreased the size of their fleets to meet the decline in transaction volume. At the same time, Hertz has been growing its local (nonairport) business, the segment of the car rental business that has remained more profitable, and which Enterprise Rent-A-Car Co. dominates. Nonetheless, despite reduced volume and pressure on rates, the car rental 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 also been depressed for several years due to the weak economy.
Standard & Poor's expects to complete its review of Ford by Nov. 18, 2003. Standard & Poor's believes it is highly unlikely that ratings will be lowered below investment grade as a result of the current review.
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 www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Credit Ratings Actions.