S&P reduced Europcar’s corporate rating by one-notch yesterday. The corporate family rating was lowered from B+ to B, the 2017 notes from B+ to B, and the 2013 and 2018 subordinated notes from B- to CCC+. The outlook on all Europcar bonds is negative. The reason for the downgrade was the absence of improved revenues and profitability in 2011, which S&P had been expecting, but did not materialize.
Additionally, S&P expects operating performance to slightly deteriorate in 2012. The negative outlook is due to refinancing risk related to upcoming debt maturities, including the May 2013 subordinated bond. The market remains wary of the subordinated bonds given the high leverage of the company, the limited cash generation in the recent past, and the complicated organizational and financial reporting structure.