Fitch Ratings has assigned a 'BB' rating to Movida Europe S.A. 's (Movida Europe) proposed benchmark sized senior unsecured notes due in five years or longer.
The notes will be unconditionally and irrevocably guaranteed by its controlling shareholder Movida ParticipacOes S.A. (Movida) and Movida Locacao de Veiculos S.A. (Movida Locacao). Proceeds will be used to refinance existing debt and general corporate purposes.
Fitch currently rates Movida's Foreign Currency (FC) and Local Currency (LC) Issuer Default Ratings (IDRs) at 'BB' and Movida and Movida Locacao's Long-Term National Scale Rating at 'AAA(bra)', all with Stable Rating Outlook. Fitch equalizes the ratings of Movida and its controlling shareholder Simpar S.A. (Simpar; FC and LC IDR BB/Stable), reflecting the medium legal and strong operational and strategic incentives that the holding has to support Movida, if needed.
Simpar's 'BB' IDRs reflect its large scale, robust business profile and strong competitive position within the Brazilian rental and logistics industry. Simpar group benefits from a diversified service portfolio and long-term contracts for a significant part of its revenues, with a solid and resilient operating performance. The ratings also incorporate the group's ample financial flexibility and the expectation that EBITDA expansion and moderate capex levels will lead to a gradual and consistent consolidated leverage reduction. Fitch considers that there is limited room for frustration on expected cash generation, capex and more meaningful acquisitions without pressuring the ratings.
On a standalone basis, Movida has a solid position in the competitive Brazilian car and fleet rental business, with relevant scale and positive operating performance. Movida's consolidated financial leverage should remain moderate, despite of expected negative FCFs. The company has consistent access to funding and significant liquidity, allowing it to properly manage its debt amortization schedule.
Key Rating Drivers
Parent and Subsidiary Linkage: Movida's ratings reflect Simpar's medium legal and strong operational and strategic incentives to support its subsidiary, which equalize the ratings of both companies. In addition to the cross-default clauses on Simpar's debt and the relevant shareholding control, Movida has strong growth potential and important commercial synergies, which contributes to the group's greater bargaining power with customers, suppliers and in vehicle purchases. Simpar's controlling shareholders and its managers form the majority of Movida's board of directors.
Solid Business Position: As the second largest player in the car and fleet rental industry in Brazil, Movida has a strong business position, supported by its relevant scale, positive operating performance, a national footprint and an adequate used car sale operation. As of December 2023, Movida's total fleet of 244 thousand vehicles, consisting of 113 thousand in rent-a-car (RaC) and 131 thousand in fleet management (GTF), secured meaningful market shares both in RaC and GTF. As a result, the company has proven bargaining power with automobile manufacturers and is able to capture economies of scale. At YE 2024 and 2025, Fitch forecasts Movida's own total fleet at around 256 thousand and 287 thousand vehicles, respectively.
Resilient Operating Performance: Movida's rental EBITDA should grow gradually based on organic growth and resilient margins, as the company scale increases. Balanced demand and supply dynamics, declining interest rates and adequate rental rates, should enable a gradual return on invested capital (ROIC) spread recovery, closer to historic levels. The rating scenario considers Movida's net rental revenues around BRL6.1 billion in 2024 and BRL7.0 billion in 2025, comparing with BRL5.1 billion in 2023. Rental EBITDA margin should be adequate at 60%-62%.
Pressured FCFs: The rating scenario considers that Movida's cash flow from operations (CFFO) should evolve along with rental EBITDA and benefit from the expected interest rates decline in Brazil. Fitch forecasts EBITDA of BRL3.7 billion and CFFO reaching BRL1.5 billion in 2024, with BRL4.3 and BRL2.0 billion, respectively, in 2025. Movida operates in a capital-intensive industry, with FCF expected to remain negative, around BRL8.0 billion, after average annual capex of BRL9.9 billion in 2024 and 2025, and dividend payout ratio of 30%. Movida's used car sale proceeds, forecasted at BRL6 billion, on average, over the two-year period, will fund part of its expected capex.
Deleverage May Take Longer: Net leverage (IFRS-16 adjusted), measured by adjusted net debt/rental EBITDA, should remain around 4.0x, on average, over the rating horizon, compared to an average of 4.2x in the last four years. The expected negative FCFs and weak used car sale prices pose a challenge for Movida's intended financial deleverage. Movida 2023's liability management, which reduced total adjusted debt to BRL16 billion from BRL19.5 billion are positive as they can benefit the overall cost of capital and support the reduction of the company's net leverage.
Derivation Summary
Compared with Localiza Rent a Car S.A. (Localiza; FC and LC IDR BB+/Stable), Simpar has similar scale and a much more diversified service portfolio, but a weaker financial profile, with higher leverage and more pressured FCF. In the case of Unidas LocacOes e Servicos S.A. (Unidas; FC and LC IDRs BB-/Stable), Simpar has a much stronger business profile, higher liquidity, better access to the credit market and similar leverage.
Key Assumptions
Total fleet increasing 5% in 2024 and 9% on average on the next three years;
Average ticket for RaC increasing 2% in 2024 and 3% on average on the next three years;
Average ticket for GTF increasing 8% in 2024 and 5% on average on the next three years;
Capex of BRL8.5 billion in 2024, BRL11.3 billion in 2025 and BRL10 billion in 2026;
Dividend payout around 30% throughout the rating horizon.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Upgrade on Simpar's ratings.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Downgrade of Simpar's ratings;
Deterioration of Simpar's legal, strategic and operational incentives to provide support.
Liquidity and Debt Structure
Robust Liquidity: Movida presents a robust liquidity profile and proven access to capital markets. The bond issuance will reinforce the company's cash position and enable it to better manage its liabilities due in the short and medium-term, resulting in a longer debt amortization schedule. The issuer's cash to short-term debt ratio has been strong at 2.0x on average during the last four years. As of December 2023, Movida had BRL3 billion of cash and equivalents and BRL16 billion of total adjusted debt (95%+ unsecured), with BRL2 billion due in 2024, BRL3.5 billion in 2025 and BRL3.6 billion in 2026.
Movida's debt profile is mainly comprised of local debentures (61%), bank loans (22%) and the fully hedged U.S. dollar denominated bonds due 2031 (8%). The company's ability to postpone growth capex to adjust to the economic cycle and the considerable number of the group's unencumbered assets, with a book value of fleet over net debt at around 1.3x, add to its financial flexibility.
Issuer Profile
Movida is the second largest vehicle and fleet rental company in Brazil, both in terms of fleet size and revenue, and also operates in the sale of used vehicles. The company is publicly traded, with shares traded on B3 S.A. - Brasil, Bolsa, Balcao and a free float of 34.24%, with Simpar (65,02%) being the main shareholder.
Date of Relevant Committee
01 September 2023
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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