Hertz expects to finance the bulk of its acquisition of Dollar Thrifty Automotive Group via the bond market, the car rental company said today.

On Sunday, Hertz announced it had reached an agreement to acquire Dollar Thrifty for $87.50 per share in cash. It said the transaction has a corporate enterprise value of approximately $2.3 billion.

Mark Frissora, Hertz’s chairman and chief executive, said during the webcast that, over time, Hertz would “assume” Dollar Thrifty’s financing of its fleet of rental cars, currently financed via securitization, under Hertz’s own ABS program. He did not elaborate

A slide posted on Hertz’s Web site indicates that Barclays, Bank of America Merrill Lynch and Deutsche Bank have committed to provide Hertz with $1.95 billion in bridge loan financing. The slide says permanent financing is anticipated to be a mix of "incremental" term loan and long-term bonds.

During a Webcast this morning, executives reiterated that most of the permanent financing will come from the issuance non-investment grade bonds, with a smaller portion of financing coming from term loans.

Chief financial officer Elyse Douglas explained that Hertz has the ability to issue additional debt under its term loan facility, but there is a "most favored nation clause" with regards to pricing. "With where we see the high yield market now, we see the majority of financing being done in bonds, but there would be a piece done in term loans, within those restrictions," Douglas said.

Frissora said the company remains committed to reducing leverage over time and obtaining an investment grade rating, notwithstanding the additional debt it will take on as a result of the acquisition.

Both Hertz and Dollar Thrifty are rated B+ by Standard & Poor’s and B1 by Moody’s Investors Service.

Hertz's leveraged, measured as the ratio of corporate debt to EBITDA, was 3.2x as of June 30; had the acquisition of Dollar Thrifty been completed at that time, the combined entities would have been levered 3.7 times, according to another slide posted on Hertz's website. However, the slide indicates that cost synergies would have reduced leverage to 3.4x.

Responding to a question from an analyst participating in the call, Douglas said Hertz does not anticipate issuing equity and using proceeds to pay down debt. "Although that's always a possibility, we really don't have any plans to do that," she said, adding, "the debt markets are in great shape."

Hertz had an initial public offering of stock in November 2006, but is still approximately 38% owned by a group of private equity sponsors including Clayton, Dubilier & Rice, The Carlyle Group, and Bank of America.

For Hertz's and Dollar Thrifty's deals in the ASR Scorecards database, please click the links below.

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