Europcar : An opportunity to reinvest in the credit?

Europcar is returning to the credit market with a planned € 950m bond issue to finance the acquisitions of Goldcar and Buchbinder and redeem the EC Finance 2021 notes before maturity. - We have a Stable Credit Opinion on the name, as we do not anticipate any pressure on S&P and Moody's ratings in the medium term. Given that the group's performance remains satisfactory, and given that management's acquisition strategy remains fairly conservative and, in any case, consistent with a B1/B+ rating (bearing in mind that both S&P and Moody's have higher theoretical ratings under their methodologies). - We had maintained a Neutral recommendation on the 2021 and 2022 notes in our recent updates, arguing that their spreads offered no particular buy opportunity but reflected the credit's fairly defensive profile and the growing probability of an early redemption. We are not modifying our Neutral recommendation today on the EUROCA 22 notes, while the new bonds provide an opportunity to reinvest in the credit. Price talk has just been announced of 4.25-4.5% for the senior unsecured 2024 notes, while the (secured) fleet notes are being offered at 2.75% (+/-0.125%). At these levels, the premium is modest, but this is understandable in view of Europcar's good track record and the lower yields offered by comparable bonds in the secondary market. Also, regarding the EC Finance (secured) bonds, it should be kept in mind that they are guaranteed by the fleet (S&P estimates a recovery rate of 901e100%). These two new bonds can therefore be bought in a diversification perspective. - - >Buchbinder and Goldcar: two strategic acquisitions to reinforce European leadership - Europcar has announced several acquisitions year-to-date, including Goldcar and Buchbinder. This will strengthen the group's positioning in Europe, in particular in the low-cost segment, and boost revenues by at least 25%. These acquisitions represent a total investment of more than € 750m this year. They will be 75% financed by debt and 25% by the capital increase launched in June. As a result, "corporate" leverage is set to jump from less than 1x at end-2016 to 2.4x at 30 June, 2017 pro forma. However, this remains in line with the strategy pursued by management, which has explained since the IPO that debt would probably increase to these levels to finance acquisitions.Europcar is due to release Q3 2017 results on 9 November. - The third quarter is the most important period of the year for Europcar because of vigorous demand during the summer holidays (in 2016, Q3 represented a third of annual sales but two-thirds of corporate EBITDA). Our equity analyst forecasts corporate EBITDA of € 185m in Q3 2017, up 16% from a year earlier. Besides the effects of the consolidation of Europcar Ireland and Europcar Denmark, organic growth should also be positive (+7% for sales), notably thanks to a good tourist season in France. - For more information about Europcar's credit profile, please see our Credit Focus of 31 March 2017