Rent-A-Center reduces debt by $64 million in third quarter

By Jennifer Lanning Drey

Portland, Ore., Oct. 28 - Rent-A-Center Inc. reduced debt by $64 million during the third quarter through a $34 million reduction in senior debt and a $30 million reduction in subordinated debt, Robert D. Davis, the company's chief financial officer, said Tuesday during Rent-A-Center's quarterly earnings call.

Year to date the company has reduced debt by $265 million.

In light of current market conditions, Rent-A-Center plans to continue to apply all excess cash flow above its working capital needs toward paying down debt.

"We are very mindful of the current environment and uncertainty of the future or when things may improve, so we'll continue to make the balance sheet a top priority," Mark E. Speese, the company's chief executive officer, said during the call.

At quarter end, Rent-A-Center's leverage ratio was 2.59 times, compared to a maximum allowable ratio of 3.25 times under the covenants related to its credit agreement.

The company's debt included $754 million in senior term debt and $240 million in 7½% subordinated notes.

"We feel comfortable with where we are with regard to our leverage, liquidity, cash flow and generally our overall capital structure in this period of economic uncertainty," Davis said.

"As always, we continue to prudently utilize our cash resources going forward."

Rent-A-Center ended the third quarter with $99.19 million of cash and cash equivalents. During the period, the company generated operating cash flow of $101 million, bringing the year-to-date total to $314 million.

"As we all know, in this environment cash and liquidity are precious and we continue to demonstrate the ability to generate cash, a true strength of our company and our business model," Davis said.

Earnings up, revenue down

Rent-A-Center posted third-quarter net earnings of $29.4 million, demonstrating a $4.1 million increase from net earnings of $25.3 million for the same period in 2007.

Revenues for the quarter ended Sept. 30 were $708.8 million, showing a slight decrease from revenues of $709.7 million in the prior-year period.

The company said the drop in revenues resulted from the closing of 315 stores over the past year under its previously announced restructuring plan.

During the quarter, Rent-A-Center saw increased demand from higher-income customers as a result of the tightening credit markets but lost customers on the lower-income side.

The company is promoting lower-cost products to mitigate customer loss, Speese said.

"I believe we are financially sound and in a good position to manage the business for both the short and long term," he said.

Rent-A-Center is a Plano, Texas-based rent-to-own company.

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