Press Release: Fitch Ratings
February 11, 2002
NEW YORK, NY -- Fitch Ratings has affirmed a 'BBB+' rating for Cendant Corporation's (Cendant) senior unsecured
debt, a 'BBB' rating for its subordinated debt and an 'F2' rating for its commercial paper. Fitch Ratings has lowered
PHH Corporation's, ('PHH'),a wholly owned subsidiary of Cendant, senior debt to 'BBB+' from 'A' and commercial
paper to 'F2' from 'F1' equalizing ratings with its parent. Fitch has removed both entities from Rating Watch Negative.
The current Rating Outlook is Stable.
Cendant's ratings consider the diversity and stability of its core businesses, the company's leading position in
most of its business lines, the resolution of the shareholder class action settlement and the expectation that
complementary acquisitions will be successfully integrated. It also reflects the company's commitment to managing
its businesses and acquisition strategy so that leverage, debt service and other important credit ratios remain
within ranges that are satisfactory for existing credit ratings.
The rating action on PHH reflects an evolution in Fitch's perspective with respect to ratings distinctions between
a parent company and its subsidiaries. Fitch has taken the position that due to the control typically exercised
by a parent company over its subsidiaries and its subsidiaries' resources, timely interest and principal payments
have, at best, similar risk profiles whether they are made at the parent company or subsidiary level. As a result,
today's action has equalized the ratings and the outlook of PHH with that of Cendant. This action is not reflective
of the underlying credit quality of the PHH businesses.
By mid-year 2002, Cendant expects to have fully paid its $2.85 billion litigation settlement liability through
use of existing cash balances. While debt has substantially increased from 2000 levels as a result of multiple
acquisitions in 2001 and the litigation settlement, recent acquisitions are expected to provide accretive cash
flow adequate to maintain current ratings.
Fitch placed Cendant and PHH on Rating Watch Negative on September 28, 2001 due to the rising concern that Cendant's
travel-related businesses, including hotel franchising, timeshare and car rental operations, might be materially
affected by the events that occurred on September 11 and that PHH's mortgage and other business lines might be
adversely impacted by a weaker economy.
Fitch has removed Cendant from Rating Watch Negative because of Cendant's ability to mitigate the adverse impact
of the events of September 11. Although Cendant's Avis car rental business was negatively impacted by the decline
in airplane travel, Cendant has reduced the size of its Avis rental car fleet by exercising its option to return
cars to the manufacturers under previously negotiated repurchase agreements. Avis has a large concentration of
airport rental locations, but is expected to maintain relatively stable pricing and its historic utilization rates
at the reduced fleet size.
Cendant's other travel-related businesses were not materially effected by the events of September 11. In the hospitality
sector, franchise fees received from its moderately priced hotels and motels have remained stable. Since its hotel
franchisees operate primarily at roadside locations, they are not as dependent on airline traffic as high-end lodging
chains. The timeshare and timeshare exchange businesses have also remained stable post- September 11. Potential
downside in timeshare exchange has been mitigated by the capability to exchange to a 'drive to' location. Cendant's
timeshare development company, Fairfield Resorts, has also benefited from its significant number of 'drive to'
resorts. Galileo, which earns fees by processing travel industry transactions, was only acquired by Cendant in
October 2001. The decrease in air travel has resulted in fewer transactions and the ongoing integration of Galileo
introduces some uncertainty about future performance. However, Cendant has already significantly reduced annual
expenses at Galileo that will be a mitigating factor to results in 2002.
Cendant's financial services segment, representing approximately 16% of revenues and 14% of EBITDA in 2001, was
not impacted by the events of September 11. These businesses will continue to provide stable operating cash flow
and diversification to Cendant's principal operations.
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Contact:
Fitch Ratings
Gian-Carlo Laguzza, 212/908-0212
Tom Razukas, 212/908-0223
Peter J. Shimkus, 312/368-2063
Tom Abruzzo, 212/908-0793
Media Relations:
James Jockle, 212/908-0547