According to mainstream press, the Budget Group, parent company of Budget Rent A Car, will likely file for bankruptcy protection within the next few weeks, at which time Cendant Corp., owner of Avis Holdings, will apparently be first in line to acquire the rental car concern. Cendant would pay $100 million in cash and assume about $3 billion in debt, reports stated.
As ASR has been reporting since Budget missed an interest payment on its senior debt in April, the event of bankruptcy would technically trigger an early amortization, which for rental car ABS is essentially a fleet liquidation - the proceeds theoretically cover full principal to note holders. In this case, however, sources anticipate Budget's deals would not wind down, and that it would continue making its master lease payments even in the event of bankruptcy, particularly if the company is in fact acquired by Cendant. The reasoning: Cendant's intention is apparently to beef up its rental car empire, so why liquidate the fleet? Of course, this is all source speculation.
Regardless, there are indications that Budget is winding down its Budget Funding Corp. ABCP conduit, which would be forced down in a bankruptcy. Credit Suisse First Boston is liquidity agent on the $500 million conduit, along with trustee Deutsche Bank.
What Budget needs, reportedly, is cash to finance a fleet so that it can operate as a going concern, whether or not it ends up a subsidiary of Cendant. As reported in early June by ASR, it was heard Budget was inquiring into the logistics of securitizing a rental car fleet while in bankruptcy (via Team Fleet Financing). It is unclear how or if any of this is still being considered given the new developments.
Being a travel, vacation and real estate enterprise, Cendant is being viewed by analysts as a natural suitor, as there would be obvious synergies in a merger/acquisition. However, the possibility of the acquisition had no impact on Budget's triple-C senior debt credit rating (SD by S&P), as it is assumed by the rating agencies that the acquisition would follow a "pre-planned" bankruptcy.
