Europcar Affirmed At #B+#; Outlook Proposed Debt Rated #BB# And #B-#; Existing Debt Affirmed At #BB# And #B-#

Stocks and Financial Services Press Releases Monday October 16, 2017 17:42
MADRID--16 Oct--S&P Global Ratings
MADRID (S&P Global Ratings) Oct. 16, 2017--S&P Global Ratings today affirmed its 'B+' corporate credit rating on France-based car rental company Europcar Groupe S.A. The outlook is stable.

At the same time, we assigned our 'BB' issue rating to the proposed €350 million fleet bond. The recovery rating is '1', indicating our expectation of very high recovery (90%-100%, rounded estimate 90%) in the event of a payment default.

We also assigned our 'B-' issue rating to the proposed €600 million senior notes. The recovery rating is '6', indicating our expectation of negligible recovery (0%-10%, rounded estimate 0%) in the event of a payment default.

In addition, we affirmed our 'BB' issue rating on the €500 million senior secured revolving credit facility (RCF) due 2022. The recovery rating remains at '1', indicating our expectation of very high recovery (90%-100%, rounded estimate 95%).

We also affirmed our 'B-' issue rating on the €600 million senior notes due 2022. The recovery rating is unchanged at '6', indicating our expectation of negligible recovery (0%-10%, rounded estimate 0%) in the event of a payment default.

Europcar closed its acquisition of German car rental company Buchbinder on Sept. 20, and is expected to close its acquisition of Spanish low-cost car rental company Goldcar, announced in June, by year-end. We continue to think that Europcar's recent acquisitions do not affect our view of the group's business risk profile, though we acknowledge that Goldcar and Buchbinder fit very well with Europcar's strategic objectives.

We also incorporate into our assessment that Paris-based private equity firm Eurazeo recently disposed of a 10% stake in Europcar, which leaves the firm with a stake of approximately 35%. Since Eurazeo's ownership is now below our 40% threshold to be considered a financial sponsor, in our view, the group's financial policy weighs less on its creditworthiness. However, this has no immediate impact on the rating on the group. In addition, although we consider Europcar's financial policy to be aggressive, we believe the group has financial flexibility and that there is still some headroom in the rating.

For our complete rationale on Europcar, please see "Europcar Affirmed At 'B+' On 1H Results, Planned Acquisitions; Outlook Stable; Lower Recovery Prospects On Upsized Debt," published July 27, 2017, on RatingsDirect.

The stable outlook on Europcar reflects our view that, despite a temporary increase in leverage and weaker credit metrics as a result of recent acquisitions, alongside ongoing pricing pressures in Europe, the company's credit metrics will remain relatively consistent with the current ratings. That said, we expect adjusted EBIT interest cover at over 1.3x, debt to capital of about 85%, and funds from operations (FFO) to debt over 12%, together with adequate liquidity.

We could lower our ratings on Europcar over the next year if the company proves unsuccessful in integrating its recent acquisitions. This would cause weaker-than-expected operating performance and credit metrics. We could also consider a negative rating action if Europcar suffers considerable revenue or profit declines (for example, due to continued pricing pressures), resulting in EBIT interest coverage falling toward 1.1x or FFO to debt declining to below 12%, or if liquidity were to weaken from current levels. Rating pressure could also arise if we believe that the financial policy becomes more aggressive, for instance through additional debt-funded acquisitions or any increase in shareholder remuneration beyond the group's stated dividend policy.

Although unlikely over the next 12 months, we could raise the ratings on Europcar if better-than-expected earnings, due to stronger volumes or pricing, together with smoother-than-anticipated integration of its acquisitions, lead EBIT interest coverage to improve toward 2016 levels of over 1.6x, FFO to debt comfortably in the 15%-17% area, and a commitment from the group to maintain credit metrics within those guidelines. However, we currently view the group's aggressive financial policy as constraining the ratings at the current levels.

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