September 10, 2024 14:26 GMT
Avis (B1/BB-) 2Q (to June) Moody's affirms
TRANSPORTATION
$500m 5NC2 Snr Unsec (B1/BB-), pricing later today
- UoP; paydowns of TL due in 2029 and fleet financing debt.
Moody's has affirmed family rating of Ba3, senior secured (mostly TLs) at Ba1 and the senior unsecured (most of the corporate debt) at B1.
- Moody's expects EBT margins to weaken to 7.5% - consensus is at 4% (from 16% last year) and is waiting at midpoint of company's Q3 guidance for EBTIDA $500-$600m (seasonally high qtr). YTD EBT is a $115m loss.
- We do think Moody's is too high on above and given leverage is already above its downgrade threshold of >4x (we see gross at 5.5x) we would not rule out rating downward pressure. It's not firm on what would require a downgrade though - we suspect if vehicle financing facility metrics (i.e. used car prices and secondary liquidity) hold firm it may have a tendency to look past operating weakness. Avis says it has $1b headroom to issue under the vehicle financing program.
- If it is downgraded then it is in a bed of its own making. Record FY23 revenues went straight to equity holders ($1.3b in FCF -> $1.3b in buybacks + dividends) while debt levels actually increased a tad. Debt has continued to move higher this year on issuance while YTD EBTIDA is running -82% lower; falling used car prices is weighing on depreciation costs while rental pricing is deflating.
The caution is more for $ investors; € lines already trade wide end of BB & B names. On that note, we are keen to see how above prices.
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