The Hertz Corp. Commercial Paper Rated 'F1' by Fitch IBCA; - Fitch IBCA Financial Wire -
11 December 1997
The Hertz Corp. Commercial Paper Rated 'F1' by Fitch IBCA; - Fitch IBCA Financial Wire -
NEW YORK, Dec. 11 -- The Hertz Corp.'s (Hertz) commercial
paper program is rated 'F1' by Fitch IBCA. This rating also applies to all of
the company's subsidiary commercial paper programs, which are guaranteed by
Hertz (listed below). Approximately $2.3 billion of commercial paper was
outstanding at Sept. 30, 1997. The rating reflects Hertz' leadership position
in the global car rental business, the high proportion of rental vehicles
covered by manufacturer buyback agreements (non-risk vehicles), solid
operating profitability and management's commitment to maintain 100%
commercial paper back up at all times. Also considered in the rating is the
relationship between Hertz and Ford Motor Co. (rated 'A+/F1'). At Sept. 30,
1997, Ford controlled 94.5% of Hertz' voting stock and is Hertz' largest
rental car supplier. Rating concerns center on the economic cyclicality of the
car rental and commercial equipment rental businesses and the high level of
goodwill on the company's balance sheet.
Based in Park Ridge, NJ., Hertz is the market leader in its two core
operating segments: car rental and commercial equipment rental. Both these
markets have undergone significant structural changes over the last two years
which have strengthened Hertz' standing and positioned the company for
continued long-term growth. Hertz is the largest rental car company in the
world with approximately 5,500 owned or franchised locations in 141 countries
or jurisdictions and a rental fleet of over 425,000 vehicles at Sept. 30,
1997. Its subsidiary, Hertz Equipment Rental Corp. (HERC), is the largest
equipment rental company in the U.S., based on revenues.
As a result of the vibrant national economy, combined with solid price
increases in the car rental business, Hertz reported record earnings in 1996
and is on track to report record earnings for 1997. Earnings growth has been
top-line driven as solid increases in U.S. rental car rates in 1997 have had
no adverse effect on utilization. Operating efficiencies have improved, due
to strict expense management throughout the company as well as the
implementation of many of Hertz' domestic systems into its European business.
Operating margins in the equipment rental business have contracted moderately
due to increased industry competition and a slight shift in HERC's product mix
to industrial equipment.
The combination of improved operating performance, along with Hertz'
successful initial public offering on April 25, 1997, has resulted in a
significant strengthening of the company's balance sheet. Nevertheless, the
high level of push down goodwill as a result of the company's acquisition by
Allegis Corp. in 1985 and Ford Motor Co. in 1987 somewhat restricts Hertz'
financial flexibility. At Sept. 30, 1997, goodwill composed 50% of equity.
Further improvement in Hertz' capital structure is expected in 1998 by Fitch
IBCA, due to moderate asset growth combined with high earnings retention and
the continued amortization of goodwill.
Despite the high level of goodwill, the company's balance sheet is very
liquid. The car rental fleet turns over, on average, at least once every
12 months while its accounts receivable turns monthly. Over 80% of the car
rental fleet is covered by manufacturer buyback agreements with Ford
accounting for slightly over 50% Hertz' nonrisk cars in 1997.
At Sept. 30, 1997, Hertz had $2.58 billion in committed credit facilities.
The company has $2.08 billion in bilateral facilities with a group of 31 high
quality domestic and international banks. These facilities are comprised of a
364 day $895 million facility, which expires on June 25, 1998, and a five year
$1.195 billion facility, which expires on June 30, 2002. The short-term
facility contains a four term out feature for loans outstanding at expiration,
while the long-term facility has an evergreen feature. Although these
facilities have no financial covenants and no material adverse change clauses,
they do contain negative pledge covenants. In addition to the bank
facilities, Hertz has a $500 million two year evergreen facility with Ford,
which expires in June, 1999.
Commercial paper ratings:
The Hertz Corp. 'F1'
Hertz Australia Pty. Ltd. 'F1'
(Guaranteed by the Hertz Corp.)
Hertz Canada Ltd. 'F1'
(Guaranteed by the Hertz Corp.)
Hertz Finance Centre Plc. 'F1'
(Guaranteed by the Hertz Corp.)
SOURCE Fitch IBCA Investors Service