Fitch: No Impact on Avis' Ratings Following Announcement to Acquire Zipcar

NEW YORK--()--Fitch Ratings believes there is no impact on the ratings of Avis Budget Group, Inc. (ABG) and its debt-issuing subsidiary Avis Budget Car Rental, LLC following ABG's announcement on Jan. 2, 2013 of its intent to acquire the outstanding shares of Zipcar, Inc. (ZIP) for $12.25 per share, totaling approximately $500 million. A complete list of ratings appears at the bottom of this release.

ABG has agreed to acquire ZIP, a leading car-sharing network, representing a transaction value totaling approximately $500 million. ABG intends to finance the purchase price primarily through incremental corporate debt borrowings. The combination is expected to produce $50 million to $70 million in annual synergies through lowering fleet costs, increasing utilization across the two companies, and increased incremental revenues, which Fitch believes is achievable given ABG's track record of managing operating leverage. The acquisition is subject to approval by regulators and ZIP shareholders, and is expected to be completed in the spring of 2013.

Fitch views the ZIP acquisition to be neutral to ABG's current ratings, as the transaction is not expected to result in a significant increase in cash flow leverage. On a pro forma basis, corporate debt-to-annualized adjusted EBITDA, assuming $60 million of potential synergies, would increase approximately a quarter turn from 3.6x to 3.9x as of Sept. 30, 2012. Net of cash, leverage is expected to rise from 2.9x to 3.2x, which remains within ABG's articulated leverage target of between 3x and 4x.

Fitch believes the acquisition is strategically complementary, as it expands ABG's current daily and weekly car rentals to include ZIP's hourly product offerings. In addition, Fitch expects ABG's standalone near-term operating performance will improve, given the continued strength of the used vehicle market and the company's efforts to optimize fleet utilization and operating efficiencies.

RATING DRIVERS AND SENSITIVITIES

Positive rating actions would be driven by ABG's ability to sustain improvements in operating leverage and liquidity, maintain appropriate capitalization and economic access to funding in the capital markets, and its ability to achieve proposed synergies and manage expected integration costs. Fitch would also view positively ABG's ability to manage net leverage, as measured by net corporate debt-to-adjusted EBITDA below its articulated range in the longer term.

Conversely, negative rating actions could result from a material deterioration in revenue and cash flow generation resulting from declines in passenger volumes, rental rates and used car values which impair ABG's access to funding, liquidity, and/or capitalization. A meaningful and sustained increase in net leverage over and above ABG's articulated range could also yield negative rating actions.

Fitch currently has the following ratings:

Avis Budget Group, Inc.

--Long-term Issuer Default Rating (IDR) 'B+'.

Avis Budget Car Rental, LLC

--Long-term IDR 'B+';

--Secured term loan 'BB+/RR1';

--Senior secured debt 'BB+/RR1';

--Senior unsecured debt 'B+/RR4'.

The Rating Outlook is Positive.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012)

--'Recovery Ratings for Financial Institutions' (Aug. 15, 2012)

--'Finance & Leasing Companies Criteria' (Dec. 11, 2012).

Applicable Criteria and Related Research:

Finance and Leasing Companies Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696720

Recovery Ratings for Financial Institutions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686295

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

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Contacts

Fitch Ratings
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Johann Juan
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Fitch, Inc.
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or
Secondary Analyst
Mohak Rao, CFA
Director
+1-212-908-0559
or
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Nathan Flanders
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+1-212-908-0827
or
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brian.bertsch@fitchratings.com