Enterprise CFO Bill Snyder spoke recently with Auto Rental News on how Enterprise funds its fleets (Enterprise Rent-A-Car, National Car Rental and Alamo Rent A Car), and on the company's outlook on the current financial market.
ARN: What is your position on your funding needs for the Enterprise brands?
Snyder: We have sufficient liquidity such that we will not need to go to the debt markets through our fiscal year-end [July 31] 2010. Actually, as we look out, unless we start seeing significant fleet growth, we would be fine through fiscal year-end 2011.
ARN: When you need capital, what is your method of accessing it?
Snyder: As the only investment-grade rated rental car company, we're the only company that's capable of financing through the unsecured market as opposed to the securitized market. We prefer to go into the unsecured market, which means we borrow on our overall credit. If you securitize, you will get a lower interest cost, but what comes along with that is a lot of inflexibility in how you can manage your fleet. There's much more stringent terms that relate to a securitized borrower.
ARN: What stringent terms?
Snyder: There are a number of things. There can be enhancement levels that are required of you, so you can't borrow 100 percent on your vehicles, certainly not anymore. For any type of change in your operation or ownership of vehicles you have to go back to the lenders to get their approval. When there are maturities, you have to pre-fund them well ahead of when they're actually due. You don't have the ability to buy and sell cars as easily as if you were unsecured. We believe that the flexibility that we have by being unsecured in the way that we can manage our fleet more than offsets the lower interest cost that we would get by being a securitized borrower.
ARN: Times are tough for the industry in general in terms of financing. You guys are in a pretty good position, but how have you been managing debt and financing?
Snyder: We have paid down debt this year, we haven't borrowed. And we have not drawn on our lines of credit. Through the first nine months of our fiscal year 2009, we have paid down over $3 billion worth of debt, and we've purchased over $10 billion worth of cars in the first nine months. I think that speaks to our general liquidity position and the strength of our cash flows. We are totally internally financing vehicles through our operational cash flows and the overall strength of our balance sheet. So our interest costs have been dropping because our debt levels have been dropping.
ARN: Would some sort lease deal work for Enterprise, similar to the ones Avis Budget has announced and Hertz is working on?
Snyder: There aren't a lot of lenders in this space that are going to have a better credit rating than we have, so one component we'd have to evaluate is interest cost. I don't know the specifics of those deals, but my general sense is there probably wouldn't be an advantage to us there. From Enterprise's perspective, it's hard for me to envision that somebody could offer us a lease deal at a lower cost than what we could do.
ARN: In your view, is TARP funding something that the auto rental industry could take advantage of?
Snyder: We have said all along in our investor calls that we are not interested in taking TARP money. In fact for a long period of time, the industry had been saying it would be nice to have but they didn't need it. In any meetings we've had with the Federal Reserve, the Treasury and anyone else, we were very supportive of getting money to consumers and getting money to the dealerships to really help the manufacturers. That should be the focal point of help, getting money to consumers so they can buy cars.