Capital Markets

Financing Jump-start for Dollar Thrifty

The removal of limits on how many of its rental vehicles could be outside of manufacturer repurchase programs should provide needed flexibility in ...
Stephen TaubFebruary 5, 2009

Dollar Thrifty Automotive Group has won greater flexibility in how it finances the purchases of cars for its rental fleet.

The company, which operates the Dollar Rent A Car and Thrifty Car Rental brands, said rating agencies and the monoline insurers of its medium-term note agreed to scrap the requirement that it maintain a specific percentage of the value of its vehicle inventory under manufacturer guaranteed repurchase or depreciation programs, or GDPs.

Under previous medium-term-note agreements, no more than 75 percent of the net book value of vehicle inventory could be in non-program, or risk, vehicles. The company now can have a fleet of 100 percent risk vehicles, while retaining the ability to purchase GDP vehicles at its discretion to meet seasonal demand and allow flexibility in its de-fleeting cycle.

Dollar Thrifty CEO Scott Thompson said, “We will be able to make fleet purchase decisions based on the most favorable purchase economics available in a rapidly changing marketplace, rather than a predetermined mix of GDP and risk vehicles. Additionally, this amendment allows us the flexibility to reduce our credit exposure to the residual value guarantees provided by the vehicle manufacturers during an uncertain time in our economy.”

The company also announced that it amended its credit facility. It permanently reduced the maximum outstanding enhancement letters of credit of its commercial paper and MTN programs by $50 million to $148 million, and made a corresponding reduction in its revolving credit facility that permanently reduced the total revolving loan and letter of credit commitment to $290 million.

“The reduction in the revolving loan and letter of credit commitments is part of the overall process of right-sizing our business to adapt to the current economic climate,” said Thompson.

Last month, Dollar Thrifty warned again of a “significantly” wider fourth quarter loss on lower revenue as the car rental market struggled amid the broader auto industry’s woes. Still, the company said it will end the quarter with more than $210 million in cash, as operating losses and changes in working capital were offset by a $100 million cash dividend from its vehicle-finance subsidiary.

Dollar Thrifty is viewed as more vulnerable than some other car rental companies in part because of its ties to Chrysler LCC. The rental firm was spun off by Chrysler in 1997, and Chrysler products still account for a large part of its fleet.

Last month, The New York Stock Exchange, which had announced a temporary relaxation of its listing requirements in light of the rapid market-capitalization decline of many of its listed firms, applied a new, lower threshold in not delisting Dollar Thrifty shares.

The Big Board acknowledged that the rental car firm is one of a dozen or so companies that could benefit from the NYSE’s decision to reduce its listing requirement, which previously called for a $25 million minimum market cap. An exchange official would not identify the other companies that could benefit.

Dollar Thrifty acknowledged that it had failed to meet the $25 million minimum market capitalization requirement for the 30-day period ended Dec. 22, 2008. But the company said that the NYSE, in advising the Dollar Thrifty of its decision, had recognized the overall decline in trading prices in today’s volatile markets.