Avis Issuing 29's to refi 26's; There could be value on large NIC's to secondary here

Avis (B1/BB-) is expected to call its €350m 4.75% 26's (at par) - they were trading there earlier this year but had sold-off to ~€99.4 after its disappointing Q4 results last week. It will refi the bonds with a €400m 5NC2 (YR2 at par +50%; YR3 at par +25%; YR4 at par) & will leave net corporate leverage unch. at 1.7*.

Though there has been no rating action since its earnings, the 30's have moved +70bps (YTW) to 6.7% which places it in line with B rated names - as we flagged downgrade risk (vs. current ratings) is high after the weak operating metrics & depreciation guidance - analyst consensus for FY24 EBITDA have been cut from ~$1.65b to $1.4b ($2.5b in FY23) & similar magnitude of cuts to FCF (as low as ~$0.7b). Avis is a name that targeted returns to equity holders for the "record revenue year" in FY23 ($1.3b in total dividends & stock purchases to be exact) - for debt holders this leaves a question mark on FCF use this year (particularly for buybacks) as earnings falls.

For reference Avis had corporate debt of $4.8b and net debt of $4.5b to end the FY - strong earnings in FY23 brought leverage down to ~1.7* - but that's expected to climb by another >1* this FY - this is accounted for in current ratings (Moody's ceiling 4*) but ratings also reference operating metrics (including fleet Util>70%, RPD falls, falling used car prices increasing collateral requirements) - all of which were points of concerns last week. The sell-off now leaves the 30's pricing in-line with single B's - this seems fair given above - considerable NIC's on the 29's may be attractive here.

The 29's will be 17 months shorter in tenor to the (soon single outstanding) €July 30's but workout on the 30's is at first par call date in July 28 (& hence 7-months shorter). Its pricing at 6.6%/€102.9 & likely a floor here. The $ Avis curve prices steep spread pickup between the 29 & 31's (+100bps) & matched in yield (rates curves are flat out here) - the €30's swaps over wide vs. $ curve indicating not a great proxy for the 29's.

Investor call at 1pm Lon/8am ET; https://www.netroadshow.com/events/login?show=ffee...