Tulsa World: Dollar Thrifty rating lowered again

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Dollar Thrifty rating lowered again
S&P service cites the declining auto industry and weak earnings.

By D.R. STEWART World Staff Writer
Published: 12/23/2008 2:28 AM
Last Modified: 12/23/2008 4:09 AM

Standard & Poor's Ratings Services on Monday lowered the long-term corporate credit rating of Tulsa rental car company Dollar Thrifty Automotive Group Inc. to "CCC+" from "B-", its second ratings drop of the company in two months.

Standard & Poor's said Dollar Thrifty, which employs about 700 people in Tulsa and 7,000 worldwide, remains on Creditwatch with negative implications, on which S&P placed the company on Feb. 12.

"The downgrade is based on the company's exposure to distressed U.S. auto manufacturers, particularly Chrysler LLC, the need for longer-term covenant relief on its corporate credit facility, and a continuing weak earnings outlook due to pressure on demand, pricing and vehicle residual values, which began earlier in 2008," the ratings agency said in a report Monday. "If the company is unsuccessful in extending covenant relief past the current Feb. 28, 2009, period, ratings will likely be lowered."

Shares of Dollar Thrifty, which operates under the Dollar Rent A Car and Thrifty Car Rental brands, closed Monday at $1.09, down 6 cents or 5.2 percent.

The Tulsa company has been hit by the downturn in corporate and leisure travel, surplus capacity in the rental car industry that has led to weak pricing and lower resale value of its used cars.

In the third quarter, Dollar Thrifty had earnings of $18.9 million, a 67 percent increase over 2007 third-quarter earnings of $11.3 million. Revenue in the third quarter was $500.6 million, a 4 percent decline from the same

quarter last year.

Due to the uncertainty of the economy, the domestic automotive and airline industries and the used vehicle and financial markets, Dollar Thrifty executives said they expect to report a fourth-quarter pre-tax loss significantly greater than the $30.58 million fourth-quarter loss in 2007. The company also expects to post a 2008 pre-tax loss, company executives said.

Standard & Poor's said Dollar Thrifty is in compliance with its credit agreement that requires the company to maintain a ratio of corporate debt to earnings before interest, taxes, depreciation and amortization — EBITDA — of no more than 3.5-to-1.

"While the company is currently in compliance with this ratio, it also has two asset-backed facilities that total $1 billion that mature in May 2009," S&P said in its report. "In addition, we expect reduced demand and higher costs to cause it to violate the covenant unless it is amended and for a longer period of time.

"The distressed U.S. auto manufacturing industry is also having a material negative effect on the car rental industry. Dollar Thrifty has significant exposure to Chrysler LLC. It has the largest percentage of Chrysler vehicles in its fleet of the four largest U.S. car rental companies.

"Prices in the used car market, in which the auto renters dispose of their vehicles, have been depressed in 2008. This is caused by concerns about the long-term viability of the U.S. auto manufacturers as well as an oversupply of used cars in the marketplace due to limited access to credit and the effect of the recession on consumer spending."

In order to cut costs and realign its work force in a declining economy, Dollar Thrifty laid off 400 people in October.

Also in October, the company also named Chief Financial Officer Scott L. Thompson as its new president and CEO.

D.R. Stewart 581-8451
don.stewart@tulsaworld.com By D.R. STEWART World Staff Writer

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