Movida Participacoes S.A.

The stable outlook on Movida reflects our expectation of ongoing fleet expansion over the next few quarters, increasing cash flows. Although we expect higher debt to fund this growth, credit metrics will likely remain relatively stable. We expect the company to post EBIT interest coverage at 2.0x-2.6x and FFO to debt of 15%-20% in 2021 and 2022. A positive rating action in the next 12 months could result from a consistent growth trend, with an increasing share of revenue coming from fleet management, which would lower cash flow volatility and improve profitability. The upgrade would also depend on our view of lower risks of worsening or changing consumer sentiment and demand, stemming from the pandemic and from the trend of

...High exposure to the RaC segment implies risks of greater earnings volatility. Since Simpar's (formerly JSL S.A.) acquisition of Movida in 2013, the company has been investing to expand its fleet substantially to meet the increasing market demand in the RaC and fleet management and outsourcing (GTF) segments. While the latter segment has been growing rapidly over the past few years, the RaC segment still represents about 60% of the company's total fleet. This reduces earnings predictability and raises risks of cash flow volatility due to the segment's following characteristics: short-term contracts, fierce competition, and cyclicality of demand among tourists and corporate customers....

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