Fitch Rts Hertz's Sr. Debt 'A+'; All Rtgs On Rtg Watch Negative

    NEW YORK--Aug. 31, 2001--Fitch assigns its 'A+' senior debt rating to The Hertz Corp. (Hertz).
    All of Hertz's ratings are on Rating Watch Negative including the `F1' commercial paper ratings for Hertz, Hertz Australia Pty. Ltd., Hertz Canada Ltd., and Hertz Finance Centre plc. Hertz is a wholly owned subsidiary of Ford Motor Co., whose ratings were placed on Rating Watch Negative on August 17, 2001 due to concerns regarding the deterioration in Ford's balance sheet and operating liquidity, both of which have materially weakened during a period in which automotive production and sales levels have been relatively healthy. Hertz had approximately $7.5 billion of public securities outstanding at June 30, 2001.
    Hertz's ratings reflect Ford's ownership. Additional considerations include Hertz's leadership position in the global car rental business, the high proportion of non-risk vehicles (vehicles covered by manufacturers' buyback agreements) to total rental vehicles, conservative financial management, and solid profitability. Rating concerns center on the economic cyclicality of the car rental and equipment rental businesses and the difficult pricing environment in each sector currently, the potential operating risks arising from Hertz's continued expansion into the suburban car rental market, including the insurance and dealer replacement segments, and the significant level of intangible assets as a percentage of equity, albeit improving.
    Although profitability has weakened in 2001, Hertz's credit fundamentals remain solid. However, because of the close operating relationship between Ford and Hertz beyond ownership, the ratings are linked.
    Hertz reported five consecutive years of record earnings through 2000 in part due to the vibrant domestic economy combined with solid price increases in the car rental business and improved operating efficiencies in Europe. However, with the economies of the United States and Western Europe slowing, the operating conditions in the equipment rental business remaining problematic, and $9.7 million of merger related charges in connection with Ford's tender offer on March 9, 2001 of 18.5% Hertz's common shares publicly floated at Dec. 31, 2000, the company reported a net loss of $3.9 million, its first quarterly loss since 1995, for the period ending March 31, 2001. Hertz's operating performance rebounded in the second quarter of 2001 and Fitch believes that the company will be solidly profitable for the remainder of 2001.
    Hertz's leverage has steadily declined from 6.00 times (x) at Dec. 31, 1994, to 3.36x at Dec. 31, 2000, principally as a result of internal capital formation significantly exceeding asset growth. The decline in leverage occurred during a period in which Hertz aggressively expanded its Hertz Equipment Rental Corp. business on a de novo basis and through a series of small acquisitions resulting in approximately $300 million of goodwill added to the company's balance sheet. Despite the current business slowdown, Fitch believes that Hertz's internal capital formation will continue to exceed asset growth in 2001 thereby allowing management to further reduce leverage and improve capitalization, absent a change in the company's current dividend policy.
    Based in Park Ridge, NJ, Hertz is the largest on-airport car rental company in the world with approximately 7,000 owned or franchised locations in 140 countries or jurisdictions and a rental fleet of over 400,000 vehicles at Dec. 31, 2000. Its subsidiary, Hertz Equipment Rental Corp., is the third- largest equipment rental company in the United States based on revenue.