Avis Budget Car Rental, LLC, a wholly-owned subsidiary of
Avis Budget Group Inc.
), yesterday announced that it had increased its revolving credit
facility while lowering the rate of interest and extending the
maturity period. These form part of the company's efforts to
reduce its interest expenses.
Avis Budget, which had a maximum capacity to borrow $1.50
billion under its revolving credit facility, is now authorized to
borrow $1.65 billion at an interest rate of one month of LIBOR
plus 225 basis points (bps). This represents savings of 75 bps
from the previous interest rate of one month of LIBOR plus 300
Apart from increasing the borrowing capacity, Avis Budget
extended the maturity period from 2016 to 2018. Consequently,
from now onwards, Avis Budget is expected to save over $5.0
million annually on interest expenses.
Borrowing costs have gone down significantly, helping the
companies to obtain easy financing at compelling prices.
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.
In Jun 2013, the company underwent a similar transaction when
it expanded its term loan facility to $1.0 billion from $900
million. The $1 billion term loan, issued by the company's
wholly-owned subsidiary Avis Budget Car Rental LLC was refinanced
at the LIBOR plus interest rate of 2.25%, subject to a LIBOR
floor of 0.75%. This represents savings of 75 bps from the
previous interest rate of LIBOR plus 2.75%, subject to a LIBOR
floor of 1%.
Simultaneously, the company announced the redemption of its
$124 million worth of senior notes due 2018, bearing an interest
rate of 9.625%, eliminating the outstanding balance of its
Moreover, earlier this year, the company concluded a senior
notes offering of $500 million due 2023, bearing an interest rate
of 5.5%. The proceeds from the transaction were used to eliminate
a portion of the company's previously issued high-cost debt
instruments, including principal amounts of its $325 million
senior notes with a 9.625% interest rate and maturity date due in
2018 and $25 million notes with an interest rate of 9.75% and due
In conjunction with its first-quarter 2013 results, the
company raised its corporate debt related interest expense
forecast for fiscal 2013 to $240 million, from an earlier
projected range of $230-$235 million. The increase in net
interest expense primarily was due to the cost of financing the
Zipcar acquisition, partially offset by benefits from the
company's already completed refinancing. However, this represents
a $30 million decline from the 2012 level.
Avis Budget Group is the leading vehicle rental company
providing 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 operates most of its car rental
offices in North America, Europe and Australia directly, and
operates primarily through licensees in other parts of the
Currently, Avis Budget carries a Zacks Rank #4 (Sell). Other
stocks that are performing well in the business services industry
Essex Rental Corp.
SouFun Holdings Ltd.
). Of these, comScore carries a Zacks Rank #1 (Strong Buy) while
Essex and SouFun Holdings have a Zacks Rank #2 (Buy).
AVIS BUDGET GRP (CAR): Free Stock Analysis
ESSEX RENTAL (ESSX): Free Stock Analysis
COMSCORE INC (SCOR): Free Stock Analysis
SOUFUN HLDG-ADR (SFUN): Free Stock Analysis
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