Credit risk

Car rental industry credit risk: a tour de force during the pandemic


This article is written and published by S&P Global Market Intelligence, an independent division of S&P Global Ratings. The opinions expressed here do not reflect those of S&P Global Ratings.

The COVID-19 pandemic has affected industrial sectors differently, with the car rental industry experiencing mixed impact. In the first half of 2020, many car rental companies found themselves in difficult positions with demand suppressed due to travel restrictions and lockdown measures. However, as lockdown measures have eased, this sector has become more popular as a safer and more advantageous form of public transport due to the minimal exposure to the virus and the introduction of disinfection processes that have a positive impact on the revenues of the car rental sector.

In this case study, we use the RiskGauge model from S&P Global Market Intelligence to analyze the impact of the pandemic on the solvency of a selection of companies in this sector.

RiskGauge is a statistical credit risk model that generates a credit risk assessment for public and private companies, on a global scale, which can be mapped to a credit score on a scale of 1 to 100, where a score 100 (1) is the lower (higher) credit risk. This model combines the results of three stand-alone credit risk models – CreditModel ™ (CM), Probability of Default (PD) Model Fundamentals (PDFN) and PD Model Market Signals (PDMS) – into an overall credit risk score. The integration is designed to simultaneously harness the strengths of each of the three stand-alone models: CM’s stable, long-term credit quality, PDFN’s sensitivity to changes in a company’s fundamentals, and PDMS’s responsiveness to implicit business information. Marlet. This enables the RiskGauge model to provide an aggregated, comprehensive and timely view of a counterparty’s creditworthiness. You can read more about this model in “Assessing Credit Risk Through a Multidimensional Lens”.

Credit Risk Radar – The Car Rental Industry

Figure 1 shows the evolution of credit risk for a selection of public enterprises in this sector in all geographic areas.

At the end of 2019, the average RiskGauge score for all companies in this sample is approximately “bb”. However, the global nature of the pandemic, accompanied by restrictions imposed by the government, has severely affected the solvency of this sector. In September 2020, the RiskGauge score deteriorated two notches to an average score of “b +”, reflecting the breadth and depth of the impact of COVID-19. These two notches reflect the peak of impact in all regions. By early 2021, most of the companies in this group were successful in consolidating their finances, limiting further deterioration in credit ratings, and in June began to show tentative signs of recovery and slight improvements in their ratings. credit. However, an overall low credit risk profile indicates high sensitivity to further protracted operational disruptions and a long return to a smooth road.

Figure 1: S&P Global RiskGauge Score – Car Rental Industry

Source: S&P Global Market Intelligence. The data consists of RiskGauge v2.0. As of June 30, 2021. For information only.

We’re now zooming in on a company in China, the first major economy to break out of COVID-19 lockdown restrictions.

The case of CAR Inc

CAR Inc is one of the largest car rental service providers specializing in car rental, fleet and leasing services to individuals and businesses in China. It is the market leader in terms of fleet size, revenue, network coverage and brand awareness.

CAR Inc. has been severely affected by the global pandemic, with booking cancellations peaking during travel restrictions and blockages in several provinces. The shockwaves continued to reverberate through 2020, reducing total revenues and cash flow across the car rental industry.

Figure 2 shows the evolution of credit risk for CAR Inc. from January 2019 to June 2021. Throughout 2019, CAR Inc. had a negative outlook and experienced deterioration in liquidity. S&P Global Ratings twice downgraded CAR Inc.’s Issuer Credit Rating (ICR) from “BB” in early 2019 to “B +” in late 2019 due to tighter liquidity and weaker profitability.

During this period, we also observed that the RiskGauge score fluctuated between “bb” and “b +” with an average difference of one notch with the Autonomous Credit Profile (SACP) of S&P Global Ratings and the ICR during from the same period.[1]

In 2020, with the spread of COVID-19, the government announced new lockdowns and travel restrictions, which meant customers had to cancel their travel plans, affecting CAR Inc’s revenue and cash flow. ., putting pressure on the company’s debt service capacity, profitability and liquidity.

S&P Global Ratings downgraded CAR Inc’s issuer credit rating from “B +” to “CCC” in April 2020.

The RiskGauge score also started to deteriorate after March 2020 and reached “b” in July 2020 after a three notch deterioration in the credit score. This deterioration is due to the combined effect of the negative market perception reflected in the PDMS score and the weakening of the fundamentals captured by the CM and PDFN scores, particularly in the first two quarters of 2020 when foreclosure measures strict policies have been implemented.

Figure 2: Historical development of credit risk for CAR Inc.

Source: S&P Global Market Intelligence. The data consists of RiskGauge v2.0. As of June 30, 2021. For information only.

The gradual easing of foreclosure measures and travel restrictions by the Chinese government helped improve operating cash flow and resulted in a reduction in CAR Inc.’s current liabilities towards the end of 2020. This resulted in a change of RiskGauge score to “b +”. in the first quarter of 2021.

In particular, the ICR of S&P Global Ratings went from “CCC” to “B-” during the same period.

Indigo Glamor Company Limited, a subsidiary of MBK Partners, has completed the compulsory acquisition of all of the company’s remaining offering shares to complete the privatization.[2] MBK Partners said the deal with CAR Inc. will allow it to take advantage of the long-term growth trend in China. MBK Partners is one of the largest private equity funds in North Asia[3] with a strong track record of investing in the car rental industry, having invested in eHi Car Services, the second largest car rental company in China. This could be a strong strategic move to help consolidate the two main car rental companies in China.[4]

In summary, the RiskGauge model intelligently integrates market vision and business fundamentals to provide a unique insight into a company’s creditworthiness. It offers users a simplified view of counterparty credit risk by generating daily PD and credit score estimates for a wide range of private and public companies around the world, providing a timely signal of deterioration or decline. improvement of credit risk.

Learn more about the RiskGauge model, score, and corporate credit reports here.

[1] The SACP is S&P Global Ratings’ opinion on an issuer’s creditworthiness in the absence of backing or extraordinary charge.

[2]On July 5, CAR Inc. announced that Indigo Glamor Company Limited, a subsidiary of MBK Partners, had completed the compulsory acquisition of all remaining shares of CAR Inc.



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