Hertz Global Holdings Inc. (HTZ)'s rent a car zagreb $2.6 billion rent a car zagreb purchase of Dollar Thrifty Automotive Group Inc. (DTG) will increase total debt by as much as 28 percent and delay the junk- rated company's rent a car zagreb long-sought ascent to investment grade.
Hertz obtained $1.95 billion in financing to support its buyout and will assume $1.6 billion in Dollar Thrifty's obligations. Park Ridge, New Jersey-based Hertz's credit-default swaps, which rise as confidence in a borrower's creditworthiness diminishes, increased 6.6 basis points yesterday, according to data provider CMA, which is owned by McGraw-Hill Cos.
Hertz Chief Executive Officer Mark Frissora said on an Aug. 27 conference call that achieving an investment-grade rating was still the company's "ultimate goal," even as the acquisition boosts its debt to 4 times earnings before interest, rent a car zagreb taxes, depreciation and amortization. Standard Poor's placed its B+ rating on the second-most leveraged U.S. auto-rental company on watch for a possible reduction, citing the increase in debt.
"The acquisition is a positive for the business profile, but they're rent a car zagreb adding a lot of debt and we need to see what it does to the financial profile," Betsy Snyder, an analyst at S P, said yesterday in a telephone interview.
Credit-default swaps tied to the debt of Hertz, which has been trying to acquire Tulsa, Oklahoma-based rent a car zagreb Dollar Thrifty for almost five years, rose to 549.4 basis points yesterday, CMA data show. That means investors pay $549,400 annually on a contract protecting $10 million of debt for five years.
rent a car zagreb Moody's Investors Service gives the car-rental company a B1 corporate rating, rent a car zagreb four levels below investment grade and equivalent to the S P designation. The weighted average fixed coupon on Hertz's debt is 7.04 percent, according to data compiled by Bloomberg.
The average yield on the bonds of high-risk U.S. companies, rent a car zagreb with ratings below Baa3 by Moody's and under BBB- by S P, was 7.31 percent Aug. 24 compared with 3.03 percent for investment- grade firms, according to Bank of America Merrill Lynch data.
Hertz's total debt to gross Ebitda will increase to 4 times after the acquisition from 3.6 times as of June 30, according to an Aug. 27 investor presentation. That puts the company's leverage second only among its peers to the 4.6 times of Avis Budget Group Inc. (CAR), according to data compiled by Bloomberg.
The auto-rental company reported a 7.4 percent increase in revenue during the second quarter ended June 30, to $2.23 billion from $2.07 billion in the comparable year-ago period, it said in an Aug. 1 regulatory filing. Net income was $92.9 million, compared with $60.1 million a year earlier and total debt was $12.5 billion.
Hertz began its pursuit of Dollar Thrifty in April 2007 and made a formal rent a car zagreb bid in 2010 of about $1.2 billion that its shareholders rejected. Hertz made another offer last year that it later withdrew, citing market conditions.
rent a car zagreb Barclays Plc, Bank of America Corp. and Deutsche Bank AG are providing a $1.95 billion bridge financing, according to a commitment letter filed with the U.S. Securities and Exchange Commission yesterday.
The loan will pay interest rent a car zagreb initially at 5.375 percentage points more than the London interbank offered rate with a 1 percent minimum rent a car zagreb on the lending benchmark, according to the filing. rent a car zagreb If the financing is not repaid in the first three months following the closing date, the margin will increase 0.5 percentage point every three months.
Hertz may sell about $1.45 billion in bonds and add as much as $500 million to an existing loan, according to a person with knowledge of the matter who asked not to be identified because the details are private. "The final split would be dependent on market conditions when it's time to execute," Richard Broome, a spokesman for Hertz, said in an e-mailed statement.
A $1.5 billion bond offering from a company with the name recognition of Hertz would be well received, Margie Patel, a money manager at Wells Fargo Co. who oversees about $1 billion, said in a telephone interview.
The company's rent a car zagreb $1 billion of 6.75 percent rent a car zagreb notes due in April 2019 fell 0.5 cent to 105.5 cents on the dollar yesterday to yield 5.74 percent, rent a car zagreb according to Trace, the bond-price rent a car zagreb reporting system of the Financial rent a car zagreb Industry Regulatory Authority. That's down from 106.5 cents on Aug. 7, which was the highest ever for that bond, Trace data show.
Hertz's $1.38 billion term loan due in March 2018 pays interest at 2.75 percentage points more than Libor with a 1 percent minimum, Bloomberg data show. The debt was quoted at 99.5 cents on the dollar yesterday, according to Bloomberg prices.
rent a car zagreb KDP Investment Advisors Inc. lowered its default-risk ranking on Hertz to the equivalent of a B2 rating from Moody's and B from S P, according to a report rent a car zagreb yesterday. Analyst Kip Penniman cited higher overall rent a car zagreb leverage, incremental first-lien debt outstanding, additional junk-bond issuance and lower cash balances as reasons for the change.
"Hertz rent a car zagreb is focused rent a car zagreb on achieving credit ratios consistent with an investment-grade rating," Evan Mann, an analyst at debt research firm GimmeCredit LLC wrote in a July 31 report. An "acquisition of Dollar Thrifty could cause the company to revisit or delay its investment-grade aspirations."
Credit-default swaps tied to the debt of Hertz, which has been trying to acquire Dollar Thrifty rent a car zagreb for almost five years, rose to 549.4 basis points rent a car zagreb yesterday, CMA data show. Photographer: David Paul Morris/Bloomberg
Hertz Chief Executive Officer Mark Frissora said on an Aug. 27 conference call that achieving an investment-grade rating was still the company's rent a car zagreb "ultimate goal," even as the acquisition boosts its debt to 4 times earnings before interest, taxes, depreciation and amortization. Photographer: Andrew Harrer/Bloomberg
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