China’s largest car rental provider, CAR Inc, has been upgraded to B3 from Caa1 with a stable outlook by Moody’s based on its operational efficiency and access to funding. The ongoing pandemic negatively affected the auto mobility providers’ 2020 revenue. However, the company’s business model and its leading position in China’s car rental market has allowed it to achieve flat Q1 short-term revenues YoY despite a 20% decline in its average fleet size indicating a higher rental rate and utilization. Moody’s expects that the impact of the pandemic on CAR’s business will continue to dissipate over the next 12-18 months as China has effectively contained the virus. While the rental revenue of the car rental company are forecasted to be stable, total revenues of the business could decline ~5% in the 2022 due to 6-8% lower revenues from used-vehicle sales. The lower revenues could increase the adjusted debt/EBITDA to 3.8x. However, funds from CAR’s majority stakeholder, Indigo Glamour, will ensure that the company is able to meet its short term debt. The rating agency said that “The B3 rating also considers the company’s business model, which has a certain level of financial flexibility, as seen by the short lead time for its fleet acquisitions, its asset-light network, and the ease with which it can dispose of assets.” The company had issued convertible bonds worth $425mn earlier this year to meet its financial needs and used a part of the proceeds to repay its $300mn notes due in February and its CNY 750mn ($118mn) bond due in April.
CAR Inc’s 8.875% 2022s and 9.75% 2024s were up 0.35 and 0.16 to trade at 103.25 and 105.26 respectively.