Hertz to acquire Dollar Thrifty while maintaining credit profile, capital-structure goals

By Jennifer Lanning Drey

Portland, Ore., April 26 - Hertz Global Holdings, Inc. will acquire Dollar Thrifty Automotive Group Inc. using a mix of cash and common stock in a deal that Hertz's management said was structured to maintain Hertz's credit profile and capital-structure goal of eventually achieving an investment-grade rating.

"We've recently gone to the ratings agencies and looked out over the next three years, and we think we have a clear path to investment grade, and that's clearly one of our objectives," Elyse Douglas, chief financial officer of Hertz, said during the question-and-answer portion of a Monday conference call held to discuss the transaction and Hertz's first-quarter results.

Under the terms of the acquisition, Hertz will acquire Dollar Thrifty for $41 per share, comprised of 80% cash consideration and 20% stock.

Hertz said it intends to fund the cash portion of the purchase price with existing liquidity from the combined company.

Hertz had $1.7 billion of corporate liquidity available to fund growth initiatives at the March 31 close of the first quarter, Douglas reported during the call. The figure included $801 million of unrestricted cash and $854 million available on its corporate revolving credit facility.

Hertz had total debt of $10.39 billion and net corporate debt of $3.8 billion at March 31. Net fleet debt was $5.6 billion.

The company generated $301.2 million of cash flow from operating activities in the first quarter, which was up 63% from the same quarter in 2009. The increase reflected improving business trends, Douglas said.

Hertz will pay the cash portion of the consideration included in the Dollar Thrifty transaction in two components: a $200 million special cash dividend to be paid immediately prior to the transaction closing and an aggregate $750 million in cash at closing.

Hertz said it will assume or refinance Dollar Thrifty's existing fleet debt outstanding at closing.

Hertz fleet refinancing

Also during the call, Douglas said Hertz continues to expect to complete its $1.7 billion international fleet refinancing in the summer.

In Europe, where the bulk of the refinancing will take place, Hertz is negotiating a secured revolving credit facility, amending and extending the existing fleet securitization facility and working on a bond offering, she said.

The company expects to finalize the terms and conditions of those transactions in June.

In Australia, Hertz expects to use securitizations or other secured financing as its primary sources of fleet financing and to continue to opportunistically access locally available operating and capital lease financing.

The company plans to upsize its Brazilian facility through a syndicated loan process with existing and new lenders, she said.

"We continue to be confident that these refinancings will be in place over the course of the summer," Douglas said.

Acquisition benefits

Regarding the rationale behind Hertz's decision to acquire Dollar Thrifty, Hertz chief executive officer Mark Frissora said the transaction would allow his company to expand its global presence, boost its market position and provide at least $180 million of synergies.

"This is a very important and strategic transaction for us in that it fills the gap in our product portfolio with a strong mid-tier value offering, he said.

The transaction is subject to customary closing conditions, regulatory approvals, approval by Dollar Thrifty stockholders and payment of the special dividend.

Improved revenues

Hertz also reported Monday that it posted a 6.1% year-over-year increase in worldwide revenues for the first quarter, with worldwide revenues of $1.7 billion for the period.

Worldwide car rental revenues for the first quarter increased by nearly 11%.

"2010 is off to a very promising start," Frissora said.

More specifically, Frissora said U.S. rental car volumes are exceeding the company's expectations, with strong advanced bookings through the peak summer season.

European reservations for the summer months are also robust, he said.

Hertz's equipment rental business remained challenged during the period, with first-quarter revenues down more than 15% from the prior-year first quarter.

Hertz is a Park Ridge, N.J.-based auto and equipment rental company.

Dollar Thrifty is a Tulsa, Okla.-based renter and leaser of vehicles.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.