As anticipated, Cendant Corp. is said to have reached a deal with Budget Group, and, if all goes as planned, will be acquiring the fallen rental car company out of bankruptcy for $107.5 million in cash, assuming $3 billion in debt.
As reported last week in ASR, Moody's Investors Service has shown concern over the relatively high exposure of medium duty trucks, placing several junior classes of Budget's Team Fleet Financing Corp. on watch for downgrade.
In the best case scenario, Cendant would refinance the trucks out of the deals, a ratings source said. Of course, there's always the risk that the acquisition falls through, the source added.
According to published reports, should the deal close, Cendant intends to phase out Budget's rental truck business.
"For the industry, it would be a step forward toward consolidation, and will likely remove excess capacity, pricing pressure, and other problem causing factors," said Alessandro Pagani of Banc One Capital Markets. Also, acquiring Budget would allow Cendant (which is parent company of Avis Rent A Car) to diversify out of reliance on business travelers, increasing the leisure travel component of its business via Budget.
Theoretically, that would translate to a higher utilization rate for Avis.
For TFFC bondholders, the acquisition might be seen as a positive, as Budget could continue as a going concern, beneficial for the early amortization process. The fear is that if Budget were not to emerge, it could be more likely to liquidate its fleet in a "fire sale" manner.
Meanwhile, Deutsche Bank Securities is the sole lead on the first ANC Rental Corp. securitization to hit the market since the company filed for bankruptcy last fall. Interestingly, ANC has yet to emerge, though a securitization was approved by the bankruptcy court earlier this year.
The $600 million ARG Funding transaction, which is structured with sen/sub credit enhancement, will not be part of the bankruptcy estate. Because ANC is still in bankruptcy, there is no automatic stay period. There are three possible scenarios with this deal. If ANC comes out of bankruptcy, the bondholders are given the option to keep the deal going, as opposed to having it early amortize. If it is kept going, an automatic stay period would theoretically be reinstated in the deal structure (should ANC file again). The second outcome is that ANC moves from Chapter 11 into Chapter 7 bankruptcy, which would trigger an immediate liquidation and pay down the bonds. The third possibility is that the transaction pays in full before ANC emerges (all classes on the deals have weighted averages lives less than 2.5 years).
To determine if there has been a default in the deal, the bondholders have the right to an expedited court hearing. While that wouldn't mean that the liquidation would start immediately, there would be expedited rights in court, similar to rights of a debtor-in-possession financer, although that situation is essentially untested, sources said.
ARG is being marketed at fairly wide spread levels, with the 2.06-year triple-A A-class talked at 100 basis points area over one-month Libor. In July, AESOP Funding II, the Avis issuance vehicle, priced its five year A-class at 29 basis points over one-month, although that deal featured a triple-A wrap from Ambac.
