Fitch Ratings has affirmed Localiza Rent a
At the same time, Fitch has affirmed the senior unsecured debt instruments of Localiza and its subsidiaries at '
Localiza's ratings reflect its consistent leadership in the Brazilian car and fleet rental industry, with large scale and resilient operational performance throughout economic cycles. Localiza benefits from a diversified client base and long-term contracts for a significant part of its revenues. The analysis incorporates the maintenance of moderate consolidated financial leverage, despite the expectation of negative FCF due to high capex for fleet growth and renewal.
The group has proven access to unsecured financing and, strong liquidity and a well spread debt amortization schedule. Fitch equalizes the ratings of Localiza and its subsidiaries reflecting the incentives that the parent has to support them.
Key Rating Drivers
Solid Leading Market Position: Localiza's large scale, proven operating expertise, national footprint and a strong used car sale operation allows for competitive advantage on assets purchase and lower operating costs relative to peers and supports its prominent business position within the car and fleet rental industry in
Strong Operating Performance: Localiza's consolidated EBITDA should continue to expand based on organic growth and healthy rental margins, despite of lower and normalized profitability in the used car sales. Balanced demand and supply dynamics allow adequate rental rates, resulting in a return on invested capital (ROIC) spread in line with historic levels. Localiza should reach consolidated net revenue of around
Moderate Leverage: Fitch expects Localiza to maintain its net adjusted leverage at moderate levels. Consolidated net leverage (IFRS-16 adjusted), measured by net debt/rental EBITDA, should range 2.5x-3.0x on the rating horizon, comparing with Localiza's average of 2.7x from 2019 to 2021 and with 4.8x in 2022 (due to a peak in capex). The company's
Negative FCF: The capital-intensive nature of the rental industry, which demands sizable and regular investments to grow and renew the fleet, pressures Localiza's cash flow. FCF should remain negative, on average, at
Parent and Subsidiary Linkage: Localiza Fleet, Locamerica and Locamerica RaC's ratings reflect Localiza's high strategic and operational incentives to support them, according to Fitch's Parent and Subsidiary Rating Linkage Criteria, which equalizes the ratings of the four companies. The subsidiaries operate under a common brand and compose a synergic vehicle rental ecosystem, benefiting from greater bargaining power when buying and selling vehicles and negotiating with customers. Localiza also guarantees 100% of Localiza Fleet's debt.
Derivation Summary
Compared with Localiza,
Compared to
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
Total fleet growth around 8% on the next three years;
Average ticket for RaC increasing 8% in 2023 and 3.5% in 2024;
Average ticket for GTF increasing 19% in 2023 and 7.5% in 2023;
Average capex around
Dividend payout around 30%-35% throughout the rating horizon.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade on Localiza's LC IDR and FC IDR would result from an improvement in
Upgrade not applicable to the National Scale ratings.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Failure to preserve liquidity and inability to access adequate debt funding
Failure to preserve a debt structure consisting overwhelmingly of unsecured debt
Prolonged decline in demand coupled with company inability to adjust operation, leading to a higher than expected fall in operating cash flow;
Increase in total leverage to more than 4.5x and in net leverage to more than 3.5x on a regular basis;
A negative movement on
Liquidity and Debt Structure
Robust Liquidity Profile: Localiza's robust liquidity position, ample access to different sources of funding, and track record of a proactive liability management are key credit considerations, with cash covering its short-term debt by an average over 2.5x during the last three years. The group's expected negative FCF, a result of organic growth and fleet renew, should be financed by a combination of cash and additional debt in the rating scenario.
As of
Issuer Profile
Localiza is the largest car and fleet rental company in
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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