Transport IPO: Vanguard Car Rental Files S1

Includes: CD, DTG, WIN
by: Evelyn Rubin

Key details about the proposed Vanguard Car Rental NYSE IPO. Proposed ticker: (VCG).

All excerpts are from the full SEC filing:

Company Description

We serve the daily car rental needs of both business and leisure travelers globally through a network of approximately 3,800 company-owned, franchised and licensed locations in 82 countries with a fleet of approximately 298,000 vehicles as of March 31, 2006. We operate primarily under the National Car Rental and Alamo Rent A Car brands. Based on 2005 airport concessionaire revenue data, we hold the third largest combined brand market share in the top 125 airports in the United States in which we have company-owned locations. We believe we have a leading combined brand market share based on revenues in each of Canada and the United Kingdom, operating at both on-airport and off-airport locations.

Through our National and Alamo brands, we offer two distinct daily car rental products with service attributes that meet the car rental needs of business and leisure customers. We believe that the National brand provides the frequent renter with superior rental car service and value. Through our Emerald Club loyalty program and our Emerald Aisle service offering, we provide a highly efficient car rental experience focused on speed of rental and return, such as allowing our customers to bypass the rental counter, choose their own car and obtain an E-Receipt. The National brand has a large and diverse customer base that includes more than one-third of the Fortune 500 companies.

Company History:

The National Car Rental brand has been in use since 1947, and the Alamo Rent A Car brand has been in use since 1973. National and Alamo were separately owned businesses until the mid-1990s, when Republic Industries, Inc. (now AutoNation Inc.) acquired the domestic and international National and Alamo car rental businesses as well as certain other international car rental operations and operated both brands through its subsidiary, ANC. In 2000, ANC was spun off from AutoNation. In November 2001, ANC filed for voluntary reorganization under Chapter 11 of the United States Bankruptcy Code. In October 2003, we acquired substantially all of the assets and worldwide operations of ANC...

Founded in 1992, Cerberus Capital Management, L.P., through certain Cerberus-affiliated funds and managed accounts, which we collectively refer to as "Cerberus," owns a significant majority of our equity...

Key Financial Data:
P&L: Revenue for 2005 was $2.9 billion, up from $2.7 billion in 2004. First quarter revenue grew from $656 million in 2005 to $702 million in 2007. The bulk (80% range) of the company's revenue originates in North America. The company's direct operating costs were $1.3 billion in 2005, translating to a net income of $105 million. For 2004, the direct operating costs were $1.2 billion and the net income $172 million. Q1 saw an increase in net income from $8.7 million to $10 million in 2006.

Debt: As of March 2006, the company had $292 million in cash, and $5 billion in debt.

Key Competitors

  1. For the National brand, principal US competition is from Avis [a Cendant (CD) company] and Hertz (acquired from Ford in 2005 by 3 private equity players). For the Alamo brand, principal competition is from Budget (CD), Dollar and Thrifty (NYSE:DTG).
  2. In Europe, the company competes with Avis (CD), Europcar and Hertz.

Notable Issues To Watch For
Debt: As the company notes in its S1, "We have, and will continue to have after this offering, substantial debt. Our vehicle rental fleet is primarily acquired through the issuance of vehicle secured debt, and we rely heavily on our ability to obtain debt financing to operate our business". There is considerable detail in the S1 outlining the various forms of debt the company has taken.

Regulatory Environment:
The vehicle rental market is highly regulated and complex (See, for example, from the S1: "We all are also subject to various international and U.S. federal, state and local consumer protection laws and regulations, including those relating to advertising and disclosure of charges to customers. The National Association of Attorneys General has promulgated suggested guidelines for vehicle rental advertisements in the United States. The rental car industry has sought and obtained legislation in numerous U.S. states, including California and New York, which expressly permits the separate itemization and pass through of vehicle registration fees and other concession fees and charges.")

Environmental Matters:
The company is subject to environmental restrictions (hence expenses) worldwide. Here's a taste from the S1:

Our business operations are subject to extensive federal, state and local government health, safety, environmental, zoning, and land use regulations. Each jurisdiction in which we operate may impose its own laws and regulations governing the management of petroleum and hazardous materials, water discharges and air emissions, waste disposal, and, in most cases, the release and cleanup of regulated substances. In addition, governmental authorities at all levels may require permits for some activities at our facilities, and these permits may be subject to renewal, modification, or revocation. Governmental authorities can enforce compliance with these regulatory requirements, and may seek injunctions or impose fines and other sanctions, including criminal penalties, for alleged violations. We have incurred and will continue to incur expenses to comply with applicable environmental laws and regulations.

Underwriters: JP Morgan, Morgan Stanley, Bear Stearns, Goldman Sachs.

Offering Details: Looking to raise up to $300 million.