Avis Bonds Continue Selling Off

Little reprieve for Avis (-23%) (B1, BB-; S) & Hertz (-13%) (Caa1, B+,B-) into the equities close yest - Avis €30's mids another 50c lower this morning.

The key drivers for yest's moves were large miss on 4Q operating metrics followed by weak guidance in earnings call - afternoon CPI print that had larger than expected deflation in used car prices (our Economist is weary of read-through on the magnitude of the fall though) & higher maintenance & repair costs weakened sentiment further.

We've touched on the operating metrics yesterday, and downgrades aren't out of sight here. Moody's expected normalisation in FY23 (pre-tax income margin from 15% to "low teens") & though the former seems to have come in line the fall in 4Q is indic. of a trend into the single digits- which is what consensus seems to be indicating here.

Liquidity and cash (Moody's has floor requirement at $500m for latter) were little changed but fleet utilisation came in at a low 65.1%. That wasn't helped by weaker pricing (RPD missed). Company has said it will continue de-fleeting in 1st and 2nd quarters & guiding to $325/unit depreciation in near term (rising from 4Q gross depreciation of $274/unit & $208 over the FY). Outside impacts on depreciation, fasted than expected fall in used car prices it may also raise collateral requirements in its Vehicle financing programs.

On a downgrade we still see room for Avis to widen particularly the 30's at 103.8/6.5%. Front maturity for Avis is the €350m 26's.