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Black and Yellow

13 June 2019 by jbchevrel

The Hertz Corporation (HTZ) outperformed US HY CDS space today, with 5y point tighter by c120bp, now c525bp on our European (well, British) close. That is after HTZ disclosed (unexpected) that on June 26, it will distribute to shareholders subscription rights to buy up to 57.92m new shares or c$750m, in a rights offering. Plans to use the proceeds of this rights offering to deleverage its balance sheet (basically repay the senior notes, both 20s and 21s) boosted the CDS. It looks good, because it should lower future interest expense and cut leverage while limiting dilution among existing shareholders, in particular Icahn (29% ownership) intends to participate to the offering. On top of the rights offering, HTZ cited a very strong Q2 and guides c$2.5B revenues $165-185M EBITDA (consensus was $131M). So leverage should arrive close to 6x, assuming $750m debt paydown and EBITDA of $175M (mid-point of guidance). Still not quite the 4x management’s target. HTZ debt average maturity is close to 3years, with 2021 and 2022 the biggest years, altogether more than 2/3 of total debt ($5.4B). From an M&A standpoint, earlier this week, Macquarie Research interestingly noted that a potential deal between HTZ and Avis (CAR) looks possible due to lower antitrust (DOJ) risk, after companies like Uber/Lyft have gained market share. That phenomenon leaves HTZ CAR market shares to high single-digit from low 20s.