Europcar - Initiation

All, 

Please find our initiation on Europcar here.

Modelling Europcar’s fleet is somewhere between insightful and debilitating. However, the result has been very interesting. 

Liquidity at fleet and corporate levels:

- The company has sufficient lines in place to finance its needs over the summer. The trouble is that it is breaching about every covenant (primarily LTV related) at present.

- We see a combined need of E1bn over the summer, a large part of which would have been needed under the facilities in ordinary circumstances, given the seasonality of revenue and fleet.

- Any maintenance requirements under leasing facilities will be short-lived since the company operates with very short hold periods of approx. 8 months.

Specific points on Europcar:

- Positive: Towards the end of Q3 we see the company in a position to right-size its fleet. Again, the leases are very short.

- Positive: Europcar has only 14% of At-Risk cars. Thus is relatively well insulated compared to Hertz for instance.

- Positive: Apparently 70% of cars are VW. Thus the German car manufacturer is disproportionately exposed. Assuming VW don’t want Europcar to favour French brands in the future, the OEM has to lend some support.

- Positive: A Sauvegarde filing seems to make little sense here as the company in the short term needs access to fresh cash and once it has that no longer needs the Sauvegarde.

- Negative: The company is more than 50% geared towards leisure and tourism. Most of its competitors have a higher share of corporate revenue.

- Negative: The company has relatively short-term financing in place (matching its asset base). Thus the Australian facility of AUD 404m is in negotiation right now, CP is likely running out and other lines will soon follow.

On balance: 

- The equity value currently breaks half way through the 2nd Lien Notes. 

- Given an insolvency filing is unlikely, the Notes should be layered, but survive.

- Europcar has been heavily investing in its fleet over the last years. If it were to hold off for some period, it could service the increased debt.

Wolfgang