|Bid||0.00 x 800|
|Ask||0.00 x 800|
|Day's Range||18.57 - 22.10|
|52 Week Range||6.35 - 52.98|
|Beta (5Y Monthly)||2.24|
|PE Ratio (TTM)||7.02|
|Earnings Date||Aug. 03, 2020 - Aug. 07, 2020|
|Forward Dividend & Yield||N/A (N/A)|
|Ex-Dividend Date||Feb. 23, 2006|
|1y Target Est||23.33|
(Bloomberg Opinion) -- From the customer’s perspective, car rental is a straightforward business. The only uncertainty is whether the hire company will charge you for the scratch they discover when you hand back the vehicle. Hertz Global Holdings Inc.’s bankruptcy protection filing on Friday was a reminder that today even the simplest business models are underpinned by a lot more financial complexity than meets the eye. Rather than make the rental giant more robust, financial engineering seems to have made Hertz more brittle. The proximate cause of Hertz’s demise was of course the sudden collapse in bookings caused by coronavirus travel restrictions. The company’s monthly revenue fell 73% year-on-year in April, a shortfall that even the most resilient companies would struggle to withstand for long.But Hertz’s complicated financial plumbing contributed to it becoming one of the most high-profile companies to seek protection from creditors during the corona crisis. This byzantine organizational chart from the bankruptcy filing gives you just a taste of what lies underneath the company’s hood:In the decade preceding its collapse, Hertz took on too much debt, participated in overpriced M&A and was accused of playing accounting games to pad its earnings. (For more, read this colorful account from Bloomberg’s David Welch.)So when disaster struck and a request for a government bailout was rejected (rightly in my view considering top shareholder Carl Icahn is worth some $18 billion), Hertz was already standing far too close to the precipice. Regrettably Covid-19 will probably expose more of this type of corporate frailty, both in America and around the world.Hertz’s debt binge began when it was acquired by private equity firms from Ford Motor Co. in 2005; the new owners quickly took out a $1 billion dividend. Piling on debt juiced the potential returns for the owners and helped pay the inflated $2.3 billion price tag for the Dollar and Thrifty brands in 2012, which Hertz struggled to integrate.Hertz was only able to amass an eye-watering total of $19 billion in borrowings thanks to a massive program of asset-backed lending, which became its primary source of capital.(2)Special-purpose financial entities purchase cars on Hertz’s behalf, and investors in the asset-backed securities make a return via the lease payments that Hertz is obliged to stump up. Put another way, Hertz leases cars long term from the financing subsidiary — typically for about 18 months in the U.S. — and then rents them out to customers for shorter periods.In theory, this is a stable and low-cost way for a risky borrower such as Hertz to fund the large capital outlays needed to keep its fleet looking fresh. Hertz’s corporate credit has been rated junk for the past decade but many of the asset-backed securities it issued were triple-A rated, at least until recently. However, economic shutdowns stemming from efforts to curb the new coronavirus suddenly threw a lot of sand in Hertz’s gears: The resale value of its vehicles fleet fell sharply, requiring the company to inject more cash into the financing structure.With only about $1 billion of cash on its books, Hertz was ill-placed to fund that collateral call, and the pandemic meant it wasn’t able to sell vehicles to generate cash because potential buyers were confined to their homes and auctions and dealerships were closed. (Hertz’s chief financial officer describes these acute pressures in this filing.) Asset-backed securities holders appear to have decided that allowing Hertz to fall into bankruptcy will prove no impediment to them getting most of their money back, at least for those holding the better-rated tranches of debt. The same can’t be said, however, for Hertz’s unsecured lenders, or its shareholders. Building a 39% stake since 2014 probably cost Icahn about $1.6 billion, based on a Bloomberg average share-cost estimate, but he now risks being wiped out. Hertz’s predicament was made more severe because in the U.S. it couldn’t hand back most of its surplus vehicles to the manufacturer, as is common practice in Europe. Instead it faced the task of selling them itself and bore the risk of any unexpected depreciation. The company is one of the 10 largest sellers of used vehicles in the U.S.The preponderance of these so-called “risk vehicles” in its half-a-million strong U.S. car fleet has increased since 2014 because it was more profitable than paying a premium to the manufacturer to guarantee a fixed repurchase price. There’s no reward without risk, though, as Hertz’s bankruptcy filing made abundantly clear. Having lost money in three of the past four years, Hertz did seem to have turned a corner lately: It raised capital to pay down debt last year and was ranked No. 1 for customer satisfaction in J.D. Power’s North American car rental rankings. Not that customers have much choice. Consolidation has given just three groups — Hertz, Enterprise Holdings Inc. (owner of the National and Alamo brands) and Avis Budget Group Inc. — control of almost the entire U.S. market for airport car rentals in the U.S.New competition from ride-hailing companies and a litany of management missteps meant Hertz never achieved the pricing power that Icahn and other recent investors probably assumed would come from all that merger activity. Because the industry’s fortunes are so closely tied to air and business travel, car rental demand is likely to remain weak for a while. Still, Hertz remains open for business and thanks to the more lenient Chapter 11 process it should get another chance to make a success of that oligopoly, albeit as a smaller company with different shareholders and a new capital structure. Next time you return a rental car, expect the attendant to check even more thoroughly for dents and scratches. (1) $14.7 billion of Hertz's debt relates to vehicle financingThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- The short version of Hertz Global Holdings Inc.’s bankruptcy story goes something like this: Global pandemic obliterates the travel business and lands an iconic 102-year-old company in court to seek protection from creditors.The long version is a fable about what happens when a company relies on accounting and consolidation to keep shareholders happy. It’s a tale of lurching from one CEO to another and management teams failing to stay attuned to consumer tastes.Enterprise Holdings Inc. and Avis Budget Group Inc. are suffering through the same Covid-19 drought, but Hertz’s own bad decisions and hard luck made it vulnerable at the worst time. One former top executive summed up its plight as a slow-moving train wreck.On its Chapter 11 petition, Hertz listed $25.8 billion in assets. It has over $1 billion in cash and $24.4 billion of debt. A company that began with a dozen Ford Model Ts and was taken for a spin by General Motors, Ford Motor and a group of private equity firms as parents over the decades now faces an uncertain fate that will be decided in a Delaware court.O.J., EnterpriseNo telling of Hertz’s history is complete without mention of perhaps the most disastrous end to a major celebrity-endorsement deal of all time.Hertz was owned by Ford in the summer of 1994 when police pursued O.J. Simpson in a white Bronco SUV for the murder of his ex-wife, Nicole Brown Simpson, and her friend Ron Goldman. As a Buffalo Bills running back two decades earlier, Simpson raced through airports and past children screaming “Go, O.J., go!” on his way into the company’s rental cars.The television ads were effective at emphasizing speedy service and boosted business. While the relationship was less beneficial to the company as their 19-year link wore on, Hertz stood by Simpson’s side even after a January 1989 charge for assaulting his wife. She personally convinced then-Chairman Frank Olson to stick with the star, the Washington Post reported.Hertz had some good years after the so-called trial of the century that ended in Simpson’s acquittal. But in November 1994, the same month that the jury was sworn in, the trade publication Auto Rental News ranked Enterprise its new No. 1 by fleet size and number of offices.Private Equity EraWhile Hertz was by some measures slipping in the rental industry pecking order, it was still earning tidy profits for an otherwise struggling Ford. The automaker sold the company in 2005 to two private equity firms and Merrill Lynch & Co.’s buyout unit for about $15 billion.The following year, Hertz poached the top executive at auto-parts maker Tenneco Inc., Mark Frissora, to be CEO and lead the company through a re-listing. Frissora cut costs, eliminated thousands of jobs and was paid handsomely. His $19.2 million compensation package in 2006 was more than Ford awarded its CEO last year.After weathering the global financial crisis, Hertz started pursuing a costly and drawn-out deal for Dollar Thrifty Automotive Group Inc. It tried buying the company for $1.2 billion in 2010 but ultimately paid $2.6 billion after a two-year bidding war with its rival Avis.The deal boosted Hertz’s market share by rounding out its business-traveler stronghold with a greater presence in the budget-minded leisure segment. But the acquisition also added to Hertz’s debt pile, which already was substantial thanks to the earlier leveraged buyout. The company ended 2012 with $20.8 billion in total liabilities.Dollar ShortProblems abounded with integrating the two companies, according to Maryann Keller, a longtime auto-industry consultant who was on Dollar Thrifty’s board at the time of the acquisition.The two had different computer systems that couldn’t talk to each other. Frissora lost some talented executives by moving the two companies, which had been based in New Jersey and Oklahoma, to a new headquarters in Florida.Hertz hoped to combine airport lots for the three brands to save money, but wasn’t able to do so at many locations. The company also found that Dollar Thrifty had let the tires on its cars get thinner than Hertz allowed, and many had to be replaced at a cost of $30 million. Neither problem surfaced during due diligence.In the end, a merger that was supposed to save Hertz about $100 million in the first year ended up costing it another $70 million, two people familiar with the matter said.Accounting IssuesAs expenses related to the acquisition dragged on earnings, Frissora sought other ways to keep profit up.To tamp down on vehicle depreciation, the biggest source of costs for rental companies, Frissora tried keeping cars longer, some for as many as 50,000 miles, long past the industry norm of about 30,000, former executives told Bloomberg News. His plan was to put older vehicles into the fleets of the company’s budget brands: Dollar, Thrifty and Firefly.Because cars depreciate most in their first year, holding on to them longer would slow the rate the company had to show on its books. But not enough of the older models made it out of Hertz’s fleet, and business travelers were turned off by the aging selection of rides to choose from, Keller said.And according to the Securities and Exchange Commission, the company committed fraud. The regulator said that from February 2012 through March 2014, Hertz materially misstated pretax income due to accounting errors. Investors including billionaire Carl Icahn pushed for Frissora’s ouster in September 2014, and the company restated results the following year.Hertz settled with the SEC for $16 million and Frissora wasn’t charged. A spokesman for the former CEO said he presided over operational improvements during his eight-year tenure. Hertz’s 2015 earnings restatements have no bearing on the company’s current financial situation and Frissora didn’t direct any improper accounting or engage in any wrongdoing, the spokesman said.Still, Hertz sued Frissora and three other ex-senior managers last year, seeking to claw back $70 million in bonuses over the executives’ roles in the accounting scandal. Frissora and the other executives filed their own suits in Delaware Chancery Court seeking to force the company to cover their legal bills in the clawback fight. Judge Kathaleen S. McCormick granted those requests last year. One executive reached a settlement for undisclosed terms.In an amended complaint filed in federal court in New Jersey this month, Hertz demanded that Frissora and former general counsel Jeffrey Zimmerman hand over $56 million in incentive pay because of their involvement in accounting errors that overstated Hertz’s pre-tax income. That led to the $200 million restatement and the duo’s ouster, according to court filings.Icahn EntersIcahn entered the picture after a 2014 dinner in New York that an industry analyst had with Dan Ninivaggi, who was then CEO of Icahn Enterprises. Ninivaggi was told Hertz had a good brand and solid foundation but needed discipline and better management. Icahn was swayed and bought up shares. By year-end, his holding was worth more than $1.13 billion, according to data compiled by Bloomberg.The head of Hertz’s equipment-rental business took over the company for a few months before a fateful decision. Rather than hire former Dollar Thrifty CEO Scott Thompson to run the company, Icahn went with John Tague, an ex-COO of United Airlines.Icahn “didn’t put the best people in place” and “had a revolving door of managers,” said Keller, who believes Hertz would not be in the position it’s in today if it had hired Thompson. Icahn didn’t respond to requests for comment.Tague updated Hertz’s fleet but did so with passenger cars just as U.S. consumers began fleeing sedans for sport-utility vehicles. Consumers went looking to other rental counters for SUVs, and depreciation costs mounted as sedans retained less of their value. He also tried raising prices, figuring the industry’s oligopoly would follow suit. But Enterprise and Avis didn’t and instead picked off more of Hertz’s customers.In an interview Saturday, Tague said growth wasn’t his priority. He started tilting the fleet mix toward SUVs, but had a lot else on his plate: finishing the accounting investigation and restating earnings, integrating Dollar Thrifty, rebuilding the management team hollowed out by the Florida move and spinning off the equipment-rental business.“Upon my arrival, it was clear that many things had to be addressed with a sense of urgency,” he said in a phone interview. “That’s what I undertook.”Future JourneysTague retired at the beginning of 2017 and was replaced by Kathryn Marinello, who had been on the board of GM and truckmaker Volvo AB. The results of her early efforts to shrink the fleet and further the shift toward SUVs were undercut by the emergence of Uber Technologies Inc. and Lyft Inc.Marinello did make progress. Hertz reported nine consecutive quarters of earnings growth and expanded revenue in 10 straight.But when the pandemic decimated the rental industry, Hertz still had too little cash and a mountain of debt. Marinello resigned May 16, less than a week before the bankruptcy filing.“With the severity of the Covid-19 impact on our business and the uncertainty of when travel and the economy will rebound, we need to take further steps to weather a potentially prolonged recovery,” Hertz’s new CEO Paul Stone said in a statement announcing the company’s bankruptcy. “Our loyal customers have made us one of the world’s most iconic brands, and we look forward to serving them now and on their future journeys.”The main bankruptcy case is In RE: The Hertz Corporation, 20-111218, U.S. Bankruptcy Court for the District of Delaware (Wilmington)(Updates with clawback lawsuits against former executives starting in 21st paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Morgan Stanley analyst Adam Jonas upgraded Avis from underweight to equal weight and bumped the price target from $7 to $15. You can see a clear difference between Avis and its rival Hertz Global Holdings (NYSE: HTZ) over the past month.
Shares of Planet Fitness (NYSE: PLNT), Hertz Global Holdings (NYSE: HTZ), and Avis Budget Group (NASDAQ: CAR), three companies that would greatly benefit from a rebounding economy, were jumping over 10% Monday morning as a number of positive developments give investors hope. Powell also noted that the Fed could unleash new lending programs and adjust the pace of its asset purchases. The news that the Fed has more ammunition to offset COVID-19 impacts, and that Moderna is seeing promise in a vaccine, are huge developments for companies like Planet Fitness, Hertz, and Avis, which have been hit hard by social distancing and travel restrictions.
Today we'll evaluate Avis Budget Group, Inc. (NASDAQ:CAR) to determine whether it could have potential as an...
Its arch-rival fell well short of expectations in its latest quarter, highlighting the perilous state of the car rental industry as a whole.
Investors need to pay close attention to Avis Budget Group (CAR) stock based on the movements in the options market lately.
Shares of vehicle-rental company Avis Budget Group (NASDAQ: CAR) declined 10% Wednesday as markets continued to digest news for the hard-hit auto industry and gloomy economic data. First, taking a look at broader economic data that sent the Dow roughly 200 points lower toward the end of Wednesday's trading session, the U.S. private sector cut a record 20.2 million jobs in April, the latest sign of how devastating the COVID-19 coronavirus pandemic has hit the economy. One of the hardest-hit industries has been the automotive sector, especially the car rental business that has sent shares of Avis and rival Hertz Global Holdings (NYSE: HTZ) spiraling compared to the S&P 500.
(Bloomberg) -- Rental-car companies struggling to survive the coronavirus pandemic’s catastrophic blow to their business have been working with automakers to call off purchases, in some cases even redirecting vehicles in transit to their now largely neglected parking lots.General Motors Co. is taking back cars it agreed to sell that were on their way to Hertz Global Holdings Inc., Avis Budget Group Inc. and closely held Enterprise Holdings Inc., a spokesman said. Hyundai Motor Co. also confirmed it has redirected some vehicles to its retailers that it was planning to produce for fleet customers.Early last month, Fiat Chrysler Automobiles NV compiled a list of almost 30,000 vehicles the rental-car companies had purchased and circulated it to other prospective fleet customers, according to a person who shared the document with Bloomberg News. The attempt to transfer any of the cars to other customers ultimately fell through for logistical reasons, a Fiat Chrysler spokesman said.The effort by the automakers to help the companies shrink their fleets captures just how dire the rental business is amid shutdown orders that have clobbered the travel industry. Hertz’s lenders granted an eleventh-hour reprieve from a potential bankruptcy on Tuesday, while Avis sold $500 million of high-interest junk bonds to weather what it expects to be back-to-back months of revenue plummeting 80%.Carmakers -- some of which have struggled to find space for an unprecedented glut of cars at U.S. ports -- won’t be able to count on the rental-car companies to help buoy sales for the foreseeable future. Deliveries to all fleet customers are about 20% of their business in the U.S., and the vast majority of those go to the rental channel.Hertz, Avis and Enterprise have canceled all orders of GM vehicles for May, June and into July, according to a person familiar with its operations who asked not to be identified because the information is private. Hertz said in a filing Tuesday that it doesn’t expect to acquire new vehicles for the remainder of this year.A spokeswoman for Hertz declined to comment beyond the filing, and representatives for Avis and Enterprise didn’t immediately comment.U.S. rental-car sales plummeted 77% to 32,944 vehicles in April, according to Cox Automotive. The next-lowest monthly total in data compiled over the last seven years was almost double that figure.Fiat Chrysler saw the largest decline in total fleet sales among major automakers, Cox said, without providing figures by company.‘No Business’Jim Cain, a GM spokesman, confirmed that the automaker took back some cars from rental companies and sent them to dealers who need inventory. In some states -- particularly in southern and western markets that are less affected by Covid-19 -- dealers are seeing “robust business,” he said.There was “virtually no business” last month in the fleet industry, about 80% of which usually goes to rental-car companies, according to Bob Carter, executive vice president of sales at Toyota Motor Corp.’s North American unit.“As we transitioned to people not traveling, the rental-car demand dropped precipitously,” Carter said in an interview last week.Business should start to pick back up over time, Randy Parker, sales vice president at Hyundai’s U.S. subsidiary, said in a May 1 interview.“As governments start to lift restrictions and people start to travel,” Parker said, “fleet will rebound.”(Updates with April fleet sales data in the eighth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- U.S. companies hardest-hit by the coronavirus pandemic are continuing to tap the junk bond market, even if it comes at a double-digit cost.Rental car company Avis Budget Group Inc. sold $500 million of bonds to yield 11.297%. Norwegian Cruise Line Holdings Ltd. is borrowing $600 million of four-year secured notes, which will pledge islands and ships as collateral and may come at a roughly 13% yield, according to people with knowledge of the matter.The bond sales come as more companies emerge from earnings and look to shore up liquidity through global lockdowns that have rendered their businesses largely useless for the time being. Avis expects to burn through $800 million of cash this quarter, while Norwegian included “going concern” language in its annual report, saying it will need additional financing to meet obligations over the next 12 months.Investors have thrown money at other recent high-yielding offerings like those from Carnival Corp. and AMC Entertainment Holdings Inc. that have come to the debt markets in search of lifelines. Junk bond funds have taken in billions of dollars in recent weeks in a sign of resurgent risk appetite.In Europe, companies like Royal Dutch Shell Plc and Danske Bank A/S flocked to the market for new debt, with a profit warning from French bank BNP Paribas SA highlighting the need to hoard cash in the face of the pandemic. The region saw its first junk-rated corporate deal in nearly two weeks.U.S.Avis boosted the size of its offering to $500 million from $400 million, even as peer Hertz narrowly averted a bankruptcy filing. Norwegian is also raising cash through an offering of shares and convertible bonds, as well as a private investment.The investment-grade market was also active, with Broadcom leading a list of nine deals expected to priceFor deal updates, click here for the New Issue MonitorHotel chain Marriott International has canceled a $1.5 billion revolving facility it obtained last month after it lined up funds from a recent bond sale and credit card dealsNeiman Marcus is closing in on a deal with lenders led by Pimco that would slash the department-store chain’s debt load by more than half in exchange for control of the company, according to people with knowledge of the matterEuropeDaily issuance volumes reached around 10 billion euros, more than the last three days combined. Danske Bank offered euro senior preferred notes, after its national regulator eased bail-in rules due to the pandemic.Europe’s junk bond market also saw some action, with Stada Arzneimittel’s Nidda Healthcare Holding GmbH selling 200 million euros of notes at a 3.5% couponCost of insuring European investment-grade corporate debt rose almost 2bps to ~86.4bps as the German constitutional court partly dismissed a case against the legality of ECB QE but ruled that some actions are unconstitutionalBNP Paribas also announced plans to sell 17 billion euros of Additional Tier 1, Tier 2 and senior non-preferred debt this yearGerman airline Deutsche Lufthansa AG is set to provide investors with an update on its strategy for weathering the pandemic later today, as it continues to seek a multi-billion euro government bailoutAsiaIssuance activity continued to pick up, with CK Hutchison Holdings Ltd. joining Bank Mandiri in marketing dollar bond offerings on Tuesday. State-owned mining company PT Indonesia Asahan Aluminium is also mulling a deal.More emerging market sovereigns and companies have turned to debt markets to build out cash buffers, as they face considerable challenges from the economic impact of the coronavirus. Data Tuesday showed that Indonesia’s economic growth slowed to the weakest since 2005 in the first quarterQantas Airways Ltd. raised an additional A$550 million ($355 million) in funds to weather the coronavirus crisis as it extended international flight cancellations until the end of JulyFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Forget cruise ships, for a sector that’s really suffering in the pandemic look no further than car-rental operators such as Hertz Global Holdings Inc.On Tuesday, the Florida-based company reached last-minute forbearance and waiver agreements with its debt holders to buy it time to deal with a liquidity crunch. Hertz now has until May 22 to sort out a problem that arose last month, when it stopped making payments on some of the cars it leases from a special purpose vehicle. Bloomberg News had reported that Hertz was preparing to file for bankruptcy protection unless creditors cut it some slack.Like most car-rental companies Hertz is massively dependent on air travel. It gets about two-thirds of its revenue from airports. With the Covid-19 travel restrictions, its sales have plunged and it’s burning though cash. Furthermore, its huge vehicle fleet is exposed to a decline in the value of used cars. Second-hand prices have tumbled because millions of consumers have lost their jobs and rental firms have a big surplus of vehicles they need to shift. Doing that is difficult when car auctions are closed and social-distancing measures are in force.While the whole industry is in a tight spot, Hertz is particularly vulnerable because it has too much debt and too small a cash buffer. Billionaire Carl Icahn’s big bet on car rentals — he first bought Hertz shares in 2014 following an accounting scandal and now owns 39% of the company — is deeply underwater. The shares have fallen 82% this year.This week Paris-based Europcar Mobility Group persuaded the French state to guarantee a 220 million-euro ($239 million) rescue loan, even though it too carries a lot of debt. In contrast, Europcar’s big American rivals, Hertz, Avis Budget Group Inc. and Enterprise Holdings Inc. failed to persuade the U.S. Treasury to help them, as my fellow columnist Brian Chappatta noted recently.This might seem unfair: The airlines shared $50 billion in taxpayer largess and not all were worthy recipients, but politicians don’t see car rental as equally important. Plus, there’s the small issue of who owns them. Privately-held Enterprise belongs to the billionaire Taylor family, and Avis’s largest shareholder is a hedge fund, SRS Investment Management. As for Hertz, Icahn is worth almost $18 billion, according to the Bloomberg Billionaires Index. None could be described as needy. When outlining cost-cutting measures last month, Hertz Chief Executive Officer Kathryn Marinello said it was a “resilient company.” But in financial terms, it has lacked a firm foundation. The company has $19 billion of debt and lease obligations, according to Bloomberg data, or about 4.4 times last year’s Ebitda. Cash and other liquidity was just $1.4 billion at the end of December.That’s a thin buffer considering Hertz’s vulnerability to sudden shifts in demand and car prices. Many of its vehicles are financed by asset-backed lending. If the value of those assets declines, lenders can force it to post more collateral. Unlike in Europe, most of its U.S. fleet can’t be returned to the manufacturer if it becomes surplus. And because almost all of its assets have been borrowed against, or are otherwise encumbered, unsecured creditors risk steep losses in Chapter 11 proceedings. The $500 million of senior unsecured 6.25% coupon bonds, maturing in 2022, trade at less than 20 cents on the dollar. In fairness, most of Hertz’s problems preceded Marinello’s tenure and she’s tried to put the business on a firmer footing. It raised $750 million from Icahn and other shareholders last year. Hertz’s borrowings have been a problem ever since Ford Motor Co. sold its former subsidiary to private equity in 2005. A $2.6 billion deal to acquire low-cost rival Dollar Thrifty in 2010 didn’t pay off, and Hertz’s sedan-heavy fleet was badly positioned when tastes shifted to sports-utility vehicles. Later, ride-hailing companies such as Uber Technologies Inc. emerged as alternatives to rentals. Hertz leases cars to ride-hailing firms, but it has struggled to generate cash because of heavy spending on its vehicle fleet. Competition is intense despite the industry’s increasingly oligopolistic structure. Hertz has made a loss in four or the last six years.Icahn upped his stake in March but his apparent reluctance to throw more good money after bad is understandable. Rental firms hope some nervous public transport users will rent cars until the pandemic wanes, but airlines are warning that flight demand could remain negligible until the end of this year. The outlook is grim. Enterprise has shown that it’s possible to run a rental company without leveraging it to the gills — its debt is still rated A- by Standard & Poors, albeit with a negative outlook. Hertz shows what can happen when you drive away a bigger car than you can afford.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Avis Budget (CAR) delivered earnings and revenue surprises of 26.70% and 0.89%, respectively, for the quarter ended March 2020. Do the numbers hold clues to what lies ahead for the stock?
(Bloomberg) -- U.S. companies are looking to set a third straight record month for bond issuance, with Apple Inc. and Avis Budget Group Inc. among the first out of the gates Monday.Apple brought an $8.5 billion sale after skipping its forecast for the first time in more than a decade, while rental car company Avis is seeking to raise $400 million. The tech giant was one of 10 investment-grade borrowers selling bonds Monday, in what some see as the start of another record month for supply.Companies have been borrowing at a rampant pace to shore up cash during the pandemic, with global lockdowns still largely in effect. Many are tapping the bond markets right after reporting earnings, where it’s become the norm to scrap financial estimates for the rest of the year.The first real wave of issuance got underway in March when the Federal Reserve said it would buy U.S. corporate bonds. It wasn’t until today that the central bank outlined its plans to purchase the securities in the coming days, but it will start with eligible exchange-traded funds first.Today’s investment-grade deals were “simply a continuation of extremely strong supply we saw in April as companies bolster their balance sheets,” said Steven Oh, global global head of credit at Pinebridge Investments LP. “That supply is meeting robust demand from investors, which is additionally buoyed by forthcoming Fed as buyer.”Joining Apple in the high-grade market was Oneok Inc., a midstream oil and gas company that’s rated one step above junk at Moody’s Investors Service. It’s refinancing debt with $1.5 billion of new bonds due in five, 10 and 30 years. The shortest portion will yield 5.5 percentage points above Treasuries, a level in line with high-yield rated borrowers.And speaking of high yield, which just had its busiest month for issuance in three years, Kraft Heinz tapped in that market for the first time since becoming a fallen angel in February, when it lost its investment-grade ratings. It’s raising $2 billion of notes, with some of them at yields around 4.25% and under -- less than those of Oneok. Kraft Heinz also announced a tender offer to buy back up to $1.2 billion of bonds due in the next three years.In Europe, credit risk climbed and new bond sales slowed amid mounting economic gloom and fresh tensions between the world’s two largest economies. U.S. President Donald Trump said he has little doubt that China misled the world about the scale and risk of the coronavirus.U.S.Avis is seeking to borrow $400 million of senior secured notes, confirming an earlier report by Bloomberg. Apple was in with a four-part offering -- it last borrowed in the dollar market in September.Starbucks was also in the market, and one of the latest companies to be downgraded in the middle of a bond sale. Fitch cut it one notch to BBB with a negative outlook after initial price talk was announcedFor deal updates, click here for the New Issue MonitorBDCs, the most visible part of the $800 billion private-credit market, are set to give an early look this week into how the asset class is faring amid the Covid-19 pandemicDirect lender Owl Rock is looking to raise $1.5 billion to lend to small and mid-sized companies facing liquidity issues amid the pandemic, according to people familiar with the matterEuropeA Bloomberg News survey of market participants carried out before the weekend had forecast at least 30 billion euros ($33 billion) of issuance in the region this week.Primary market issuance was limited to offerings from two German states while GlaxoSmithKline Plc brought the only corporate deal, including its first sterling bonds since 2012Consultants at EY said more than a fifth of listed U.K. companies issued a profit warning in the first quarter of 2020, well above the 17% seen in the whole of 2008Norwegian Air Shuttle ASA shareholders agreed a restructuring plan that will qualify the struggling carrier for state aid and keep it afloat in the coming months. More than 10 billion kroner ($957 million) of debt will be converted to equity, wiping out current shareholdersAir France-KLM won EU approval for a French government subordinated shareholder loan and guarantee, the European Commission saidSpain’s Telefonica SA confirmed it’s in talks with Liberty Global Plc to create the U.K.’s largest telecom operator. It follows an El Confidencial report that the company is to revise down its earnings forecastAsiaIndonesian contractor Hutama Karya was the sole Asia issuer to market dollar bonds on Monday as the cost of insuring debt against default in the region rose amid risk-off sentiment.The Markit iTraxx Asia ex-Japan index of credit-default swaps increased around 4 basis points to about 120.4 and the most in a weekFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Avis Budget (CAR) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.
(Bloomberg Opinion) -- Investors in Avis Budget Group Inc. and Hertz Global Holdings Inc. are learning the hard way what happens when widespread government bailouts don’t quite reach every corner of the U.S. economy.No matter where you look, whether it’s their stock, bonds or the asset-backed securities linked to their fleets, these rental-car companies are clearly feeling the squeeze from the coronavirus pandemic and the economic standstill. Avis shares have tumbled 76% since Feb. 20, to about $12 from $50, while Hertz is down more than 80% to about $4. Those are steeper declines than even shares of the three largest U.S. airlines, which reached an accord with the Treasury Department on federal aid just last week.The chief executive officers of Avis, Hertz and Enterprise Holdings Inc. had no such luck. They sent a joint letter to the U.S. government in mid-March requesting that the rental-car industry be included in any economic stimulus package, hoping to receive tax deferments and reduced revenue-sharing with airports. After all, their businesses are heavily dependent on the decimated travel industry, too. Instead, they’ve been left entirely out in the cold. Hertz, in which billionaire Carl Icahn has an almost 40% stake, said this week it laid off about 10,000 employees in North America. It’s seeking advice from restructuring bankers on ways to bolster liquidity and avoid filing for Chapter 11 bankruptcy, Bloomberg News reported late Thursday, noting that plans could change depending on federal support.To make matters worse, S&P Global Ratings on Tuesday downgraded Avis and Hertz by two levels, to B+ and B-, respectively, firmly speculative grade and well outside the Federal Reserve’s parameters for buying junk bonds. Credit-default swaps paint an even bleaker picture: those tied to Hertz bonds imply a 78% chance of default within the next year and 100% odds in the next five. Hertz bonds maturing in October 2022 traded Thursday at 31 cents on the dollar, equivalent to a 67% yield, while Avis bonds due a few months later trade at 66 cents to yield 22%.As for the billions of dollars in outstanding notes backed by their rental car fleets, those prices have plunged too, particularly the lower-rated portions. That’s because used-car prices are tumbling in the midst of the Covid-19 lockdown: JPMorgan Chase & Co. analysts this week cited data from auto-auction firm Manheim that showed used vehicle values plunged 11.8% in the first 15 days of April, which would easily set a full-month record.That’s bad news for holders of Avis and Hertz asset-backed securities. Back on March 25, Moody’s Investors Service described what now seems like a plausible, if not outright likely, reality for these securities:A severely weak economy that potentially leads an ABS sponsor to default on its lease obligation will raise note payment risks. If a default were to occur, the issuing trust would need to raise funds by selling vehicles, and the proceeds are at risk of being insufficient to make the required payments on the notes by the legal final maturity date. Furthermore, if used vehicle prices fall, such a decline would reduce the value of the vehicle collateral backing the ABS.Credit enhancement available to support subordinate classes of securities would be sufficient to offset a roughly 20%-30% decline in the aggregate net book value of the vehicles, as of February 2020. Senior classes of notes would be able to tolerate a roughly 45%-60% drop in value.Judging by market prices, investors are starting to get nervous. The ABS don’t trade frequently, but the top-rated portion of the most recent deal from Hertz Vehicle Financing II LP, which matures in late 2025, traded on April 8 at 89 cents on the dollar, Trace data show, down from 102 cents a month earlier. The real pain starts to appear in the triple-B rated tranche, which probably trades around 67 cents on the dollar, from more than 100 cents just a few weeks ago, according to Bloomberg Valuation estimates.The sharp decline is especially striking because many other debt markets have long since recovered from the worst of their losses. Junk-rated corporate bonds just had one of their biggest two-week advances on record, municipal yields have settled back into a reasonable range with Treasuries and even leveraged-loan prices are on the mend. All this could be a fake-out, of course, but it’s telling that anything involving rental cars isn’t even showing a glint of optimism. Hertz, for its part, last month pointed to the fact that it doesn’t face significant debt maturities until mid-2021. “We are aggressively taking actions to sustain operations and preserve liquidity,” CEO Kathryn Marinello said in a statement. Bloomberg News had reported the company was discussing options with banks, including a first-lien loan of several hundred million dollars at a yield of 12%. There’s no indication of progress on that front.As my Bloomberg Opinion colleague Chris Bryant noted last week, it make sense to expect a revival in car purchases once lockdowns are lifted across the U.S., especially in places where residents might have otherwise opted for public transit. The outlook is murkier for rental cars companies. Avis and Hertz will surely promote their disinfecting practices, like every other company, but will that be enough to offset the lockdown mentality? A more pressing concern for the companies might be how quickly people take to the skies — S&P specifically cited passenger travel forecasts as a reason for downgrading the two companies this week.Meanwhile, Fitch Ratings on March 31 revised its outlook on rental-car ABS to negative, with the coronavirus impact potentially pushing the structured notes “beyond Fitch’s stressed levels and outside of our derived base case ABS series expected loss levels.” Fitch says its analysis assumes rental-car providers would file for Chapter 7 bankruptcy and then liquidate their fleet. As Bloomberg News reported last week, though, the auto industry is already sounding the alarm on a further collapse in used-car prices, given the glut of wholesale supply in the market and expectations for even more in the months ahead.Put it all together, and it’s hard to argue with the market’s expectations for defaults and liquidation. At their peak in 2014, Hertz’s market capitalization was more than $14 billion and Avis’s was $7.2 billion. Those figures are down to $574 million and $835 million, respectively, drawing some comparisons to penny stocks. These brand-name businesses are a sobering reminder that the government can’t save every company. And it’s painful to be on the wrong side of that dividing line. (Updates to add that Hertz brought in restructuring advisers in the third paragraph.)This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Today is shaping up negative for Avis Budget Group, Inc. (NASDAQ:CAR) shareholders, with the analysts delivering a...
On Tuesday, shares of rental car company Hertz fell more than 14% after it disclosed that it received approval from its lenders to continue negotiations through May 22 to “develop a financing strategy and structure that better reflects the economic impact" of COVID-19.