Movida Participações S A : Rating Agency Report - Fitch*

RATING ACTION COMMENTARY

Fitch Rates Movida's Proposed Notes 'BB'

Mon 01 Apr, 2024 - 9:54 AM ET

Fitch Ratings - Rio de Janeiro - 01 Apr 2024: Fitch Ratings has assigned a 'BB' rating to Movida Europe S.A. 's (Movida Europe) proposed benchmark sized senior unsecured notes due in �ve years or longer. The notes will be unconditionally and irrevocably guaranteed by its controlling shareholder Movida Participações S.A. (Movida) and Movida Locação de Veículos S.A. (Movida Locação). Proceeds will be used to re�nance 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 Locação'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), re�ecting the medium legal and strong operational and strategic incentives that the holding has to support Movida, if needed.

Simpar's 'BB' IDRs re�ect its large scale, robust business pro�le and strong competitive position within the Brazilian rental and logistics industry. Simpar group bene�ts from a diversi�ed service portfolio and long-term contracts for a signi�cant part of its revenues, with a solid and resilient operating performance. The ratings also incorporate the group's ample �nancial �exibility 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 �eet rental business, with relevant scale and positive operating performance. Movida's consolidated �nancial leverage should remain moderate, despite of expected negativeFCFs. The company has consistent access to funding and signi�cant liquidity, allowing it to properly manage its debt amortization schedule.

KEY RATING DRIVERS

Parent and Subsidiary Linkage: Movida's ratings re�ect 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 �eet 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 �eet of 244 thousand vehicles, consisting of 113 thousand in rent-a-car (RaC) and 131 thousand in �eet 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 �eet 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 �ow from operations (CFFO) should evolve along with rental EBITDA and bene�t 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 �nancial deleverage. Movida 2023's liability management, which reduced total adjusted debt to BRL16 billion from BRL19.5 billion are positive as they can bene�t 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 diversi�ed service portfolio, but a weaker �nancial pro�le, with higher leverage and more pressured FCF. In the case of Unidas Locações e Serviços S.A. (Unidas; FC and LC IDRs BB-/Stable), Simpar has a much stronger business pro�le, higher liquidity, better access to the credit market and similar leverage.

KEY ASSUMPTIONS

--Total �eet 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 pro�le 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 pro�le 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 �eet over net debt at around 1.3x, add to its �nancial �exibility.

ISSUER PROFILE

Movida is the second largest vehicle and �eet rental company in Brazil, both in terms of �eet 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, Balcão and a free �oat 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

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EXTERNAL APPEAL COMMITTEE OUTCOMES

In accordance with Fitch's policies the Issuer appealed and provided additional information to Fitch that resulted in a rating action that is different than the original rating committee outcome.

RATING ACTIONS

ENTITY / DEBT 

RATING 

Movida Europe

senior unsecured

LTBBNew Rating

VIEW ADDITIONAL RATING DETAILS

FITCH RATINGS ANALYSTS

Renato Mota, CFA, CFA

Director

Primary Rating Analyst [phone] renato.mota@�tchratings.com Fitch Ratings Brasil Ltda.

Av. Barão de Tefé, 27 - Sala 601 Saúde Rio de Janeiro, RJ 20220-460

Marcelo Pappiani, CFA

Associate Director Secondary Rating Analyst [phone] marcelo.pappiani@�tchratings.com

Ricardo De Carvalho

Managing Director

Committee Chairperson [phone] ricardo.carvalho@�tchratings.com

MEDIA CONTACTS

Elizabeth Fogerty

New York [phone] elizabeth.fogerty@the�tchgroup.com

Additional information is available onwww.�tchratings.com

PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured �nance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.

APPLICABLE CRITERIA

Corporate Rating Criteria - Effective from 28 October 2022 to 3 November 2023(pub.28Oct 2022)(including rating assumption sensitivity)

Parent and Subsidiary Linkage Rating Criteria(pub.16 Jun 2023)

APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

Corporate Monitoring & Forecasting Model (COMFORT Model), v8.1.0 (1)

ADDITIONAL DISCLOSURES

Solicitation Status Endorsement Policy

ENDORSEMENT STATUS

Movida Europe

EU Endorsed, UK Endorsed

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