S&P: Hertz Holdings Netherlands BV Senior Notes Due 2022 Assigned 'B' Issue Level And '5' Recovery Rating
Our ratings on Hertz incorporate its position as one of the largest global car rental companies, and the cyclical and price-competitive nature of on-airport car rentals. They also incorporate significant debt leverage and substantial ongoing fleet funding needs resulting from its capital-intensive operations. These risks are partly offset by Hertz's ability to significantly reduce capital spending if demand declines; its ability to generate strong cash flow, even in periods of weak earnings; and its ability to maintain access to liquidity using secured borrowing and asset-backed securitizations. We assess the company's business risk profile as fair and its financial risk profile as aggressive.
The outlook is stable. We expect credit metrics to be little changed by the June 30, 2016, separation of its equipment rental business and to gradually improve based on expected rising earnings and cash flow. We could raise the ratings over the next year if better than expected earnings, due to stronger volumes or pricing, result in funds from operations (FFO) to debt increasing to the low-20% area on a sustained basis. Although unlikely over the next year, we could lower the ratings if operating performance weakens, which could be caused by weak pricing or weak used car prices, resulting in FFO to debt declining to the low to mid-teens percent area.