Avis to Eye Bond Sale to Ride Out Travel Shutdown

(Bloomberg) -- Avis Budget Group Inc., the rental-car company, is looking to sell bonds to help it get through the shutdown of the travel industry during the coronavirus pandemic, according to people with knowledge of the situation.

The company is negotiating an amendment to existing credit agreements that would enable it to sell as much as $750 million of secured bonds, the people said, asking not to be identified discussing a private matter. The amendment is close to being finalized and the bond could emerge after it’s completed, they said.

Avis shares extended their gains after Bloomberg reported the sale, rising 8.9% to $13.08 on Friday in New York. The stock has plunged 59% this year.

The rental-car industry, like airlines and cruise line operators, has been battered by a global clampdown on non-essential travel to stem the spread of Covid-19. Avis announced plans last month to cut annualized costs by $400 million and said this week it’s now on track to cut costs by $2 billion a year. The company and its peers Hertz Global Holdings Inc. and Enterprise Holdings Inc. have also asked the Treasury Department to include the industry in federal plans to rescue U.S. travel companies ravaged by the coronavirus.

A representative for Parsippany, New Jersey-based Avis didn’t immediately respond to requests for comment.

The cost to protect Avis debt for five years in the credit default swaps market jumped 6.1 points upfront to 40.6 points at 3:10 p.m. in New York, according to ICE Data Services. At that level, it costs around $4.1 million annually to insure $10 million of Avis obligations.

The company’s debt trades at distressed levels, with bonds maturing in 2027 falling to 48 cents on the dollar from around par as recently as last month, according to Trace pricing.

Avis is also reducing compensation for executives and senior employees, pausing capital spending and curbing its fleet of vehicles. Travel restrictions have contributed to an 80% plunge in revenue this month, the company said this week. Avis also said that it expects to have enough liquidity to operate through the end of this year and beyond, and that it has no meaningful corporate debt maturities until 2023. It extended a term loan maturity earlier this year to 2027.

Moody’s Investors Service downgraded Avis by two notches to B2, or five rungs below investment-grade, on Friday and said the company’s credit ratings could be cut again. It cited Avis’ weakening liquidity as a result of the pandemic, with more pressure coming from reduced used car prices.

In an effort to survive the bleak outlook for business trips and vacations, Hertz has brought in restructuring advisers to rework its debt, Bloomberg News reported on Thursday.

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