S&P Raises Avis Budget (CAR) to 'BB-'; Removes from CreditWatch Positive

Standard & Poor's Ratings Services said that it raised its corporate credit rating on Parsippany, N.J.-based Avis Budget Group Inc. (Nasdaq: CAR) to 'BB-' from 'B+' and removed the rating from CreditWatch, where we placed it with positive implications on March 6, 2014. The outlook is stable.

At the same time, we raised our issue-level rating on Avis Budget's senior secured debt to 'BB+' from 'BB' and removed the rating from CreditWatch positive. The '1' recovery rating on the debt remains unchanged, indicting our expectation for very high recovery (90%-100%) in the event of a default.

We also raised our rating on the company's senior unsecured debt to 'B+' from 'B' and removed the rating from CreditWatch positive. The '5' recovery rating on the debt remains unchanged, indicating our expectation that lenders would receive modest recovery (10%-30%) in a payment default scenario.

The rating actions on Avis Budget (parent of the Avis and Budget car rental brands, the Budget consumer truck rental brand, and the Zipcar car sharing brand) reflect the company's improved credit metrics, primarily due to solid operating earnings and lower interest expense. "We expect the company's credit metrics to remain relatively consistent through 2015, and its operating performance to improve, with continued synergies from the Avis Europe and Zipcar acquisitions offsetting incremental debt to finance growth," said Standard & Poor's credit analyst Betsy Snyder.

The outlook is stable. "We expect Avis Budget's credit metrics to remain relatively consistent through 2015, with EBITDA interest coverage in the mid-5x area, FFO to debt in the low 20% area, and debt to EBITDA in the high 3x area," said Ms. Snyder.

We could raise the rating if the company's operating performance exceeds our expectations, resulting in EBITDA interest coverage exceeding 6x and FFO to debt remaining above 20% over a sustained period.

We believe a downgrade is unlikely over the next year, but we could take such an action if industry conditions weaken, causing EBITDA interest coverage to fall to below 4.5x on a sustained basis.

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