Moody's Lowers Outlook on Hertz Global (HTZ) to Negative

November 28, 2016 4:19 PM EST

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Moody's Investors Service (Moody's) changed The Hertz Corporation's (Hertz)(NYSE: HTZ) rating outlook to negative and affirmed the company's B1 Corporate Family Rating (CFR), as well as its other debt ratings. The change in outlook reflects the uncertainty surrounding Hertz's ability to implement a number of critical initiatives that include: 1) better aligning its fleet mix with customer demand; 2) implementing disciplines that more effectively manage residual risk; and 3) realizing targeted cost cutting goals. The considerable challenges Hertz is facing in these areas are reflected in the significant $300 million reduction in the company's 2016 adjusted corporate EBITDA guidance -- to approximately $600 million from $900 million.

RATINGS RATIONALE

Hertz continues to benefit from a competitive position in the car rental sector, and fundamentals in the industry remain favorable. In addition, the initiatives it is pursuing should be achievable. However, the company's significant execution and operational reporting shortfall during the third quarter indicate that achieving these initiatives will be more challenging than the company had expected.

Hertz maintains an adequate liquidity profile with $1.1 billion in availability under its committed credit facility, $616 million in unrestricted cash (pro forma for 6.75% note redemption) and availability under various committed securitization facilities.

Hertz's rating could be lowered if the company is unable to demonstrate clear progress in rectifying the operational execution and reporting shortfalls that have emerged. A trajectory that points toward the following metrics could result in a rating downgrade: debt/EBITDA approaching 5x; pre-tax income below breakeven; or EBITDA/interest approximating 3x.

Any upward movement in Hertz's rating would require the company show clear progress in achieving its strategic initiatives that include: harvesting targeted cost savings; maintaining fleet size in line with demand; and, maintaining an adequate liquidity profile. Metrics that could support a higher rating include expectation of year end debt/EBITDA below 3x; pre-tax income/sales remaining above 7%; and EBITDA/interest exceeding 5x. All figures reflect Moody's standard adjustments.

Outlook Actions:

..Issuer: Hertz Corporation (The)

....Outlook, Changed To Negative From Positive

..Issuer: Hertz Holdings Netherlands BV

....Outlook, Changed To Negative From Positive

Affirmations:

..Issuer: Hertz Corporation (The)

.... Probability of Default Rating, Affirmed B1-PD

.... Speculative Grade Liquidity Rating, Affirmed SGL-3

.... Corporate Family Rating (Local Currency), Affirmed B1

....Senior Secured Bank Credit Facility, Affirmed Ba1 (LGD2)

....Senior Unsecured Regular Bond/Debentures, Affirmed B2 (LGD4)

..Issuer: Hertz Corporation (The) (Old)

....Senior Unsecured Regular Bond/Debenture, Affirmed B3 (LGD6)

..Issuer: Hertz Holdings Netherlands BV

....Senior Unsecured Regular Bond/Debenture, Affirmed B2 (LGD4)

The principal methodology used in these ratings was "Equipment and Transportation Rental Industry" published in December 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.



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