Fitch: No Impact on Localiza's Ratings from Hertz Brazil Acquisition

CHICAGO & SAO PAULO--(BUSINESS WIRE)-- Fitch Ratings says Localiza Rent a Car S.A.'s (Localiza) ratings will not be affected by its acquisition of Car Rental Systems do Brasil Locacao de Veiculos Ltda. (Hertz Brazil) for BRL337 million. The transaction is expected to close by mid first half of 2017, and it is subject to approval from CADE (Brazilian's Antitrust authority).

Fitch views the transaction as positive from a strategic perspective as Localiza will benefit from a larger client base and new demand from foreign passengers in Brazil. Access to new technologies is another key aspect of the transaction. From a financial perspective the impact will be minimal. Hertz Brazil's fleet of 9,200 cars is relatively small compared to Localiza's fleet of 122,334 vehicles as of Sept. 30, 2016.

As part of the transaction, Localiza and Hertz Corp will establish a strategic alliance and a global and long-term agreement through brand cooperation, which includes, among other, the use of the combined brand 'Localiza Hertz' in Brazil and the use by Hertz of 'Localiza' brand in the main airports in USA and Europe which have significant flow of Brazilian clients; and a Referral Agreement that establishes the rules for the exchange of inbound and outbound reservations between Localiza and Hertz Corp. The alliance will also include the exchange of know-how and executives between the two companies.

Localiza has a track record of strong credit metrics that provides enough rating headroom to support an acquisition of this size. From 2012 through the LTM ended Sept. 30, 2016, Localiza's FFO Adjusted Leverage averaged 1.2x, while its net adjusted debt/EBITDAR ratio averaged 2.0x. On pro forma basis per Fitch's calculation, Localiza FFO Net Adjusted Leverage would climb to 1.1x from 0.9x, while its net adjusted debt/EBITDAR ratio would increase to 2.5x from 2.3x.

On Sept. 30, 2016, Localiza had total adjusted debt of BRL3.7 billion and cash of BRL1.2 billion. The company shows a quite strong debt amortization schedule, with cash sufficient to cover all debt coming due until mid-2019.

Fitch currently rates Localiza as follows:

Localiza Rent a Car S.A.'s (Localiza):

--Long-Term Foreign-Currency (FC) IDR 'BB+';

--Long-Term Local-Currency IDR 'BBB';

--Long-term National Scale Rating 'AAA(bra)';

--Unsecured sixth, seventh, ninth, 10th, 11th debenture issuance 'AAA(bra)'.

The Rating Outlook for Localiza's Long-Term Foreign-Currency IDR is Negative due to Brazil's 'BB+' Country Ceiling rating, which constrains the rating and the Outlook of the sovereign's 'BB' Long-Term Foreign-Currency IDR. Localiza's operations are essentially in Brazil. The company does not have assets or substantial amounts of cash held abroad.

The Rating Outlooks for Localiza's Local-Currency IDR and its National Scale Rating are Stable.

Additional information is available on www.fitchratings.com

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View source version on businesswire.com: http://www.businesswire.com/news/home/20161206006231/en/

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Source: Fitch Ratings

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