Car rental firms join funding quest

* Europcar, Hertz use high-yield bonds to secure cash

* Avis Europe plans rights issue

* Europcar adopts ABS-style structure on bond

By Natalie Harrison

LONDON, June 30 (BestGrowthStock) – Leading car rental firms have
joined the growing list of indebted companies forced to tap
European capital markets to plug gaping funding holes left by a
drastic cutbacks in bank lending.

Europcar and Hertz (HTZ.N: ) raised 250 million euros ($305.9
million) and 400 million respectively through bond issues last
week to help fund their purchase of fleet cars, while Avis
Europe (AVE.L: ) plans to raise about 151 million pounds ($227.2
million) through a rights issue of new stock. [ID:nSGE65O06Y]

“While they can be paying more for the bond financing, this
does fix their costs for a set duration,” said Eugene Regis, a
high-yield credit analyst at Barclays Capital. “They now have
certainty of funding and that is what people value.”

The capital raising has eased concerns about how the three
companies would fill a funding gap caused by their banks who
have cut the size and maturity of newly arranged bank

Those credit lines were initially meant to serve as a bridge
facility to the European asset-backed security (ABS) market,
with banks willing to offer cheap rates in return for generating
fees from the management of planned ABS deals.

But the collapse of the ABS market in 2007, before any such
programmes could be put in place, left banks on the hook and
unwilling to re-offer the same generous terms.

“It’s a very nascent trend in the market where banks are
looking to devise a way to use the public corporate markets to
fill up a hole in the ABS market,” said one investor who asked
not to be named.
For a graphic on annual high-yield bond volumes


The main driver of bumper high-yield bond issuance in Europe
— around 21 billion euros ($25.7 billion) so far this year —
has been the refinancing of a mountain of senior bank loans
maturing in the next five years. [ID:nLDE65G0ZU]

“The fact that we’ve seen both Hertz and Europcar get done
is very positive because they are not in an easy sector,” said a
London-based syndicate banker.

The ability of Hertz to increase the size of its seven-year
issue by 125 million euros was also testament to strong demand
from investors, the banker added.

Both Hertz and Europcar priced their bonds at the wide end
of guidance, paying respective coupons of 9.75 and 8.5 percent,
although the banker pointed out coupons would have been as high
as 13 or 14 percent a year ago for similar deals.

In addition, Europcar’s banks reduced advance amounts —
known as loan-to-value (LTV) — they were willing to lend for
vehicle purchases.

The complex structure of the Europcar bond prompted one
investor to describe the deal as “ABS in drag”. Banks have the
option of taking the debt off balance sheet via an ABS at some
point if appetite picks up.

“It feels like an ABS with tranches and is secured on the
fleet, so in effect the bondholders would effectively be the
mezzanine tranche, while the banks are the senior tranche,” said
Phil Milburn, fund manager at asset manager Aegon.

Stock Today

(Editing by David Holmes)
($1=.8194 Euro)
($1=.6638 Pound)

Car rental firms join funding quest