Fitch Affirms and Withdraws Avis' Ratings

CHICAGO--()--Fitch Ratings has today affirmed the long-term Issuer Default Ratings (IDR) and debt ratings of Avis Budget Group, Inc. (ABG) and its various Fitch-rated subsidiaries. Fitch has simultaneously withdrawn the ratings for commercial reasons. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

IDRS AND SENIOR DEBT

ABG's ratings are supported by the strength of its brand and franchise, its leading position as a global rental car company, and solid operating performance given incremental corporate EBITDA generation. ABG's liquidity profile is considered appropriate for its ratings given its consistent operating cash flow generation, as well as its favorable access to the capital markets.

The ratings are constrained by the cyclical nature and the susceptibility of the business to the overall economy and to potential slowdowns in travel volumes. While ABG remains subject to pricing pressures and passenger volumes in air travel, Fitch believes the company is better positioned since the crisis to manage cyclical downturns and maintain profitability. This is due to improvements in supplier and revenue diversity, operating leverage, and liquidity and funding, counterbalanced by the continued reliance on secured, wholesale funding sources, as well as exposure to residual value risk.

Top line revenues were relatively flat year-over-year during the six-months of 2015 (6M15), which amounted to $4 billion in 6M15 compared to $4.1 billion one-year prior. The modest decline was a result of approximately $206 million, or 5% negative impact from currency exchange movements, largely offset by a 6% increase in total rental days driven by ABG's recent acquisition activity. Revenue growth for full-year 2015 is expected to be driven by increased volumes from organic growth and recent acquisitions, as well as improved margins from ancillary revenue generation. Adjusted EBITDA growth is expected to be driven by increased volumes and fleet utilization, as well as improved operational efficiencies. For full year 2015, ABG projects top line revenue and adjusted EBITDA growth of up to 2% and 5%, respectively. Fitch believes ABG's targets are achievable given management's prior track record of realizing its financial targets.

Fitch believes ABG has appropriate liquidity, given its available balance sheet cash and operating cash flow generation. In addition, the company continues to expand available borrowing capacity and lower its overall cost of funds to its funding facilities, which are both viewed positively. As of June 30, 2015, ABG had $529 million of unrestricted cash and generated annualized cash flow from operations of approximately $2 billion. In addition, the company had approximately $750 million available under its corporate credit facilities and $2.2 billion under its vehicle-backed facilities. Secured debt continues to represent a significant portion of ABG's overall funding, which amounted to approximately 82% of long-term debt. An increase in unsecured debt funding would add additional financial flexibility in times of market stress.

In assessing overall leverage, Fitch focuses primarily on cash flow leverage, defined as corporate debt to adjusted EBITDA. As of June 30, 2015, corporate debt to annualized adjusted EBITDA was 3.99x, which is below the five-year average of 4.70x. ABG assesses leverage net of balance sheet cash, which amounted to 3.40x as of the same period, consistent with its articulated target of between 3x and 4x. Leverage was bolstered by incremental earnings generated by increased rental volume and improved operational efficiency. Fitch expects net corporate leverage will remain within ABG's articulated range over the medium to longer term.

Fitch affirmed ABG's senior secured debt at 'BBB-', which maintains the three notch uplift from the IDR assigned to Avis Budget Car Rental, LLC (ABCR), and reflects the outstanding recovery prospects in a stressed scenario based upon collateral coverage for the term loan and revolving credit facility (together, the senior credit facility). The senior credit facility is secured by pledges of capital stock of certain of ABG's subsidiaries and liens on substantially all of the company's intellectual property and other real and personal property.

Fitch affirmed ABG's senior unsecured debt at 'BB-', which maintains the equalization of the senior unsecured debt with the IDRs assigned to ABCR and Avis Budget Finance PLC (ABF) and reflects the average recovery prospects based upon the level of available unencumbered assets available to unsecured debt holders in a stressed scenario.

SUBSIDIARY AND AFFILIATED COMPANY

ABCR and ABF are wholly-owned subsidiaries of ABG. The ratings assigned to the two entities are aligned with that of ABG because of the unconditional guarantee provided by ABG and its various subsidiaries. Therefore, the ratings assigned to the two entities are sensitive to the same factors that might drive a change in ABG's IDR.

RATING SENSITIVITIES

Not applicable.

Fitch has affirmed and withdrawn the following ratings for ABG and its various Fitch-rated subsidiaries as follows:

Avis Budget Group, Inc.

--Long-term IDR at 'BB-'.

Avis Budget Car Rental, LLC

--Long-term IDR at 'BB-';

--Senior secured term loan at 'BBB-';

--Revolving credit facility at 'BBB-';

--Senior unsecured debt at 'BB-'.

Avis Budget Finance PLC

--Long-term IDR at 'BB-';

--Senior unsecured debt at 'BB-'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Global Non-Bank Financial Institutions Rating Criteria (pub. 28 Apr 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865351

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=990886

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=990886

Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst:
Johann Juan, +1-312-368-3339
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Nathan Flanders, +1-212-908-0827
Managing Director
or
Committee Chairperson:
Christopher Wolfe, +1-212-908-0771
Managing Director
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
New York
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Johann Juan, +1-312-368-3339
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Nathan Flanders, +1-212-908-0827
Managing Director
or
Committee Chairperson:
Christopher Wolfe, +1-212-908-0771
Managing Director
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
New York
alyssa.castelli@fitchratings.com