Moody's ups Localiza ratings

Moody's Investors Service said it upgraded the rating of Localiza Rent a Car SA's guaranteed senior unsecured notes due 2005 to B2 from B3 and changed the outlook to stable from negative.

Moody's said the new rating incorporates the fact that Localiza's revenues and free cash flow have proven resistant to demand swings resulting from the volatile Brazilian macroeconomic environment, due to the company's ability to adjust rental rates and the level of net investment in its vehicle fleet. In addition, recent economic indicators have confirmed expectations for Brazilian economic growth of at least 3.5% in 2004, which should lead to stronger results in Localiza's core car rental and fleet management businesses.

The new rating also considers a significant reduction in exposure to foreign currency devaluation risk due to the company's decision to contract a swap agreement with major banks under which the company pays the CDI rate (local inter-bank lending rate) and receives real/U.S. dollar exchange rate variation plus a coupon of 9.3% to 9.8%. Thus, the company's balance sheet is protected against all devaluation risk related to the principal and interest due on the notes.

Moody's noted the new rating is constrained by refinancing risk associated with the Oct. 1, 2005 maturity of the $73.9 million in notes remaining outstanding. This refinancing risk is mitigated by cash and cash equivalents of real 159.3 million as of Dec. 31, 2003 and the company's moderate overall leverage, with strong debt protection measurements for the B2 category.

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