Fitch Announces Expected Ratings on Hertz' New Debt Issuances

NEW YORK--Nov. 28, 2005--Fitch Ratings announces the following expected ratings on the debt securities to be issued by The Hertz Corporation (Hertz) in connection with its acquisition by Clayton, Dubilier & Rice, The Carlyle Group, and Merrill Lynch Global Private Equity (CCM) from The Ford Motor Company.

Fitch expects to rate the following, with a Stable Outlook:

-- Issuer Default Rating (IDR) 'BB';

-- $1.60 billion secured revolving credit facility due 2010 'BBB';

-- $1.80 billion secured term loan due 2012 'BBB-';

-- $2.20 billion senior unsecured notes due 2013 'BB-';

-- $600 million subordinated notes due 2015 'B+';

-- $250 million letter of credit expiring 2012 'BBB-'.

Concurrent with the issuance of the debt securities listed above, Fitch expects to lower and remove the following debt ratings from Rating Watch:

-- Senior unsecured debt to 'BB-' from 'BBB-';

-- Commercial paper to 'B' from 'F2'.

The Rating Outlook is expected to be Stable.

In addition, since no commercial paper is expected to be outstanding, this rating will be withdrawn.

Hertz' rating strengths reflect the company's strong market position in the global on-airport car rental sector and solid level of recurring revenue with affiliated relationships accounting for about 85% of domestic car rental revenue in 2004. Fitch also notes that since 1967, Hertz has been profitable each year, except in 2002 due to the adoption of SFAS 142; has successfully used technology as a key differentiator from its competitors; and maintains a deep management team with significant industry experience. Also considered was the business and revenue diversification provided by the Hertz Equipment Rental Corporation (HERC) unit to Hertz.

Rating concerns center on the cyclicality and seasonality of the car and equipment rental businesses; Hertz' significantly weakened balance sheet as a result of a sharp increase in goodwill and other intangibles post-closing; limited financial flexibility, as secured borrowings will account for over 75% of total debt at closing; weak risk-based capitalization; and the investor group's exit strategy. Fitch notes that long-time Hertz CEO, Craig Koch, is scheduled to retire on Dec. 31, 2006, and the transition in leadership could cause some disruption.

In terms of the specific debt facilities, Fitch notched upward or downward from Hertz' IDR based on the collateral available and coverage to support each facility. The Asset-Based Revolver (ABL) facility was judged to have the best collateral, net depreciated value of Hertz' equipment rental fleet plus accounts receivable. Additionally, advances under the ABL facility will be governed by a borrowing base. The Secured Term Loan and Letter of Credit Facilities were collateralized by a first lien on all corporate assets with the claims of unsecured facilities being subordinated.

Prior to Dec. 3, 20051, 2005, the CCM group will acquire Hertz for total proceeds of approximately $15 billion, including $5.6 billion for Hertz' equity. This acquisition will be funded through a combination of secured and unsecured debt. Additionally, the vast majority of Hertz' vehicle fleet will be financed in the asset-backed market. As such, Fitch estimates that secured debt, including ABS, will account for over 75% of Hertz' total debt at closing.

While the CCM group is investing $2.3 billion of equity in Hertz, the difference between the $5.6 billion purchase price and Hertz adjusted book equity of $2.8 billion, adjusted for the $1.2 billion dividend paid to Ford in June 2005, results in a sharp increase in goodwill and other intangibles, including trademarks.

In most industries, a similar weakening of an issuer's balance sheet and reduced financial flexibility would most likely be highly detrimental. However, Fitch believes that Hertz, post-closing, will continue to be a dominant player in both its core businesses. Fitch's thesis is driven by the fact that the operations for nearly all of Hertz' competitors are financed with secured debt with a varying degree of financial leverage. Given Hertz' market position and its best-in-class technology, the company should not be as severely disadvantaged as other leveraged buyout entities.

While the CCM group has committed to continue Hertz' existing business strategies, Fitch believes, if nothing else, that the new owners will seek ways to fine-tune the company's approach to its markets. Even if there is no change to Hertz' current business strategies, the company's operating results will sharply decline in 2006 as interest expense is projected to rise significantly due to the substantial increase in debt.

Fitch believes that Hertz is not likely to remain highly leveraged for a significant period of time as the company's $1.80 billion term loan includes a mandatory debt repayment provision based on excess cash flow. Also, Fitch believes that the CCM group will pursue strategies to begin to monetize its equity investment over the intermediate term.

Based in Park Ridge, NJ, Hertz is the largest on-airport car rental company in the world and the third-largest commercial equipment rental company in the U.S. Together, Hertz operates or franchises approximately 8,140 locations in over 150 countries or jurisdictions with a projected average vehicle fleet in excess of 400,000 units for 2005.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.