Back to top

Avis Budget Saves on Interest Expense

Read MoreHide Full Article

Avis Budget Group Inc. (CAR - Free Report) , the leading global car rental company, has increased its term loan facility to $1 billion, from the existing $900 million, for a lower rate of interest. However, the new term loan borrowing retains the same maturity as the existing facility of 2019.

The $1 billion term loan, issued by the company's wholly-owned subsidiary Avis Budget Car Rental LLC, has been refinanced at the LIBOR plus interest rate of 2.25% subject to a LIBOR floor of 0.75%. This represents savings of 75 basis points 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 high-cost debt.

We believe this act of curtailing interest rate on existing loan facility as well as redeeming its high-cost debt will enable the company to save on its corporate interest expenses.

In another such move, 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 offering 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 due in 2018 and $25 million notes due 2020 with an interest rate of 9.75%.

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 reflects the cost of financing the Zipcar acquisition, partially offset by benefits from the company’s already completed refinancings. 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 world.

Currently, Avis Budget carries a Zacks Rank #3 (Hold). Other stocks that are performing well in the business services industry include PDI Inc. , Essex Rental Corp. and SouFun Holdings Ltd. (SFUN - Free Report) . Of these, PDI carries a Zacks Rank #1 (Strong Buy) while Essex and SouFun Holdings have a Zacks Rank #2 (Buy).

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

Avis Budget Group, Inc. (CAR) - free report >>

SouFun Holdings Limited (SFUN) - free report >>

More from Zacks Analyst Blog

You May Like