Hertz has options when it comes to debt, ends Q2 with liquidity of $840 million, says CFO

By Lisa Kerner

Charlotte, N.C., July 29 - Addressing concerns about the potential impact of rising interest rates, Hertz Global Holdings, Inc. executive vice president and chief financial officer Elyse Douglas said that the company does not "anticipate a negative impact for at least the next couple of years."

Of the $1.2 billion of fixed-rate U.S. fleet debt that matures between now and the end of 2014, the interest rates range from 2.8% to 5.4%," Douglas said during Hertz's second-quarter earnings conference call on Monday.

"This is significantly higher than the 1.8% current indicative rate for three-year term loan ABS notes."

At the indicative rate, refinancing savings would be about $18 million on a pre-tax basis.

"Additionally, we have the opportunity to call and refinance our 8½% secured euro notes at an indicative rate of around 5.25%."

This lower rate translates into $17 million per year of interest savings," according to Douglas.

"We are currently evaluating whether it makes sense to pay the call premium today or wait until the bonds are callable at par next summer," she said.

And finally, with respect to our maturing floating-rate debt, short-term rates have not increased. The current market consensus is that the Fed and ECB will not increase them until late 2014 at the earliest."

Hertz has no meaningful corporate debt maturities until 2016.

At June 30, Hertz had "strong" liquidity of $840 million that included unrestricted cash of $483 million and $357 million of availability under the company's ABL, the CFO added.

Total net corporate debt was $7.1 billion, while total net fleet debt totaled $9.9 billion. For the quarter ended Dec. 31, net corporate debt was $5.9 billion.

The company's leverage ratio was 3.7 times, or 3.4 times on a pro forma basis, at quarter end.

Douglas expects Hertz to generate free cash flow of $500 million to $600 million for the full year.

Financial highlights

"For the second quarter of 2013, we achieved record second-quarter earnings per share on both a GAAP and an adjusted basis," said the CFO.

"GAAP earnings were 27 cents per share, an improvement of six cents versus the 2012 second quarter.

Douglas attributed the increase to strong revenue growth. Worldwide rental car income was up 23%, while equipment rental income was up about 15%, year-over-year. Total worldwide company revenues rose 22% from the year before to $2.7 billion.

Adjusted EPS was up 30%, at $0.45.

GAAP net profit was up 31% from the prior-year period at about $121 million.

Cash interest expense is expected to increase to about $100 million for the full year due to incremental debt due to the Dollar Thrifty acquisition.

Hertz is a Park Ridge, N.J.-based auto and equipment rental company.

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