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Recently, leading general-use vehicle rental company Avis Budget Group Inc. (CAR - Analyst Report) 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 30, 2013.

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 include Cardtronics Inc. (CATM - Snapshot Report), Command Center, Inc. (CCNI - Analyst Report) and comScore, Inc. (SCOR - Snapshot Report). All of these carry a Zacks Rank #1 (Strong Buy).

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