Recently, leading general-use vehicle rental company
Avis Budget Group Inc.
) announced that Avis Budget Car Rental Funding LLC - its
wholly-owned subsidiary - has completed the offering of $550
million five-year asset-backed notes (ABS) carrying an annual
interest rate of 3.08%.
The proceeds of the ABS will be used to refinance the
outstanding vehicle debt maturing in 2014. According to Avis
Budget, the interest rate on the ABS is lower than the company's
existing interest on vehicle debt. However, it is higher than the
interest rate of the previous year's offering.
Last year in March, Avis Budget had completed a $750 million
ABS offering carrying an interest rate of 2.6%. The company used
the proceeds to refinance the outstanding ABS debt maturing in
2012 with an interest rate of over 6%. The offering generated
savings of about $20-$25 million in interest expense in 2012.
Borrowing costs are still very low, enabling companies to
obtain easy financing. Corporate bonds and borrowings from banks
are in high demand as the U.S. treasuries are yielding low rates.
We believe that the aforementioned moves by the company will
provide it financial flexibility to drive long-term growth.
As part of its efforts to reduce interest expenses, in Aug
2013, Avis Budget modified its principal corporate revolving
credit facility, extending the maturity to 2018 from 2016 and
increasing the amount to $1.65 billion from $1.5 billion.
Further, it reduced the interest rate under the facility by 75
basis points (bps). The company had $1.1 billion of outstanding
letters of credit and no borrowings under the facility as of Jun
Earlier in June, the company refinanced its $900 million term
loan borrowings (due 2019) with $1 billion in new term loan
borrowings due for the same period. It also lowered the interest
rate on the loans by 75 bps. Further, the company redeemed all
the outstanding 9.625% senior notes worth $124 million, maturing
in 2018 and $100 million worth of its floating-rate senior notes
maturing in 2014.
Along with second-quarter 2013 results, the company projected
interest expenses pertaining to corporate debt to be nearly $230
million, decreasing $30 million from the 2012 level.
Avis Budget Group provides vehicle rental services through its
Avis and Budget brands in more than 10,000 rental locations in
about 175 nations across the globe. Additionally, the company's
newly acquired Zipcar brand enables it to provide car-sharing
services to more than 790,000 members. The company oversees most
of its car rental offices in North America, Europe and Australia
directly, while its offices in other parts of the world are
primarily operated through licensees.
Currently, Avis Budget carries a Zacks Rank #5 (Strong Sell).
Hence, we would prefer to avoid Avis Budget until there are signs
of improvement. Meanwhile, other stocks that are worth a look
Command Center, Inc.
). All of these carry a Zacks Rank #1 (Strong Buy).
AVIS BUDGET GRP (CAR): Free Stock Analysis
CARDTRONICS INC (CATM): Free Stock Analysis
COMMAND CENTER (CCNI): Get Free Report
COMSCORE INC (SCOR): Free Stock Analysis
To read this article on Zacks.com click here.