United Rentals to fund $965 million NES purchase with ABL, new bonds

By Devika Patel

Knoxville, Tenn., Jan. 26 – United Rentals, Inc. plans to acquire Chicago-based NES Rentals Holdings II, Inc. for $965 million in cash, which it will fund through a combination of cash, borrowings under its asset-based lending facility and new bonds. The acquisition is not conditioned on financing.

“The $965 million purchase price will be paid in all cash and our intention is to draw a portion of that purchase price from our asset-based lending facility and the remainder will go into a new, underwritten, debt issue,” executive vice president and chief financial officer William B. Plummer said on Thursday when announcing the acquisition on the company’s fourth quarter earnings conference call.

“We haven’t yet decided exactly how we might approach either the amount on the asset-based lending facility draw or whether we’ll issue a new debt issue or reopen an existing issue, so more to come as we get a little bit more in depth and closer to close on that transaction.”

United Rentals expects to maintain a leverage ratio of less than 3.0, according to a press release. Return on invested capital is expected to exceed the cost of capital within 18 months of closing on the acquisition.

Plummer also said that the company hasn’t yet set a closing date.

“Regarding timing, our expectation is that we will close in the early part of the second quarter, we’ve been thinking about it as an April 1 close,” Plummer said.

The company also generated a lot of cash in 2016, which Plummer said would have a “significant positive impact” on United Rentals’ 2017 cash interest expense.

“One of the standout measures for this year was free cash flow, $1,182,000 is a record,” Plummer said.

“It was a very robust free cash flow result and helped us drive a significant reduction in our net debt,” he noted.

Net debt at the end of the year was down $500 million, versus the prior year.

Plummer said that the company finished with significant liquidity $1.2 billion in total liquidity and that includes a little over $800 million of ABL capacity and a little over $300 million of cash on the balance sheet, which will have a “significant positive impact” on the company’s cash interest expense for next year, about $65 million in 2017 compared to 2016.

United Rentals is a Stamford, Conn., equipment rental company. NES Rentals is one of the 10 largest general equipment rental companies in the United States, specializing in providing aerial equipment to the industrial and non-residential construction sectors.

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