Fitch Lowers Avis' L-T IDR to 'BB-'; Placed on Watch Negative

Business Wire, Oct 28, 2008

NEW YORK -- Fitch Ratings has downgraded Avis Budget Car Rental LLC's (ABC) Issuer Default Ratings (IDRs) and outstanding debt ratings as follows and placed them on Rating Watch Negative:

Avis Budget Car Rental, LLC

--Long-term IDR to 'BB-' from 'BB';

--Senior secured debt to 'BB ' from 'BBB-'; and

--Senior unsecured debt to 'B ' from 'BB-'.

Avis Budget Group, Inc.

--Long-term IDR to 'BB-' from 'BB'.

Approximately $1.8 billion of debt is affected by these actions.

The downgrade reflects:

--ABC's reduced funding flexibility given dislocations in the capital markets and financial guarantor space;

--Exposure to suppliers Ford and General Motors;

--Expectations for significantly higher funding costs amidst a cyclical downturn in the auto rental business.

While ABC has reduced its program cars in recent years, it does remain heavily reliant on domestic original equipment manufacturers for rental car supply. An expected decline in fleet due to less airline travel will reduce the company's funding needs over the near-term; however, future ABS issuance will command higher interest rates and increased enhancement levels, which will pressure profitability and cash flow.

The Rating Watch Negative reflects the uncertainty surrounding the renewal of the $1.35 billion conduit facility, which matures in December 2008, and the level of corporate EBITDA generation, given expectations for reduced travel volume. EBITDA is a critical component in the leverage and interest coverage covenants inherent in the corporate debt issuances. Fitch believes expectations for reduced EBITDA generation, combined with a fourth quarter step-down in the maximum leverage covenant, could lead to a violation of the corporate covenants, which could result in a change to facility terms and pricing.

The resolution of the Rating Watch will be driven by an assessment of relative liquidity and funding flexibility going forward. Fitch does not expect its review to result in more than a one-notch downgrade to the IDR; however, Fitch will also review the relative notching of ABC's debt issuances, given an expectation for reduced collateral coverage, as the conduit facility and future ABS debt issuances will require higher levels of enhancement.

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