Borrowing costs have gone down significantly, marking a record low, and in turn, facilitating the companies to obtain easy financing at compelling prices. Corporate bonds are in high demand as U.S. treasuries are yielding low rates, driving investors toward the bonds issued by the sound companies.
Debt offers of big companies are being oversubscribed, providing the corporations the option to price their offerings at lower rates. Hence, several companies are coming up with debt offerings to generate interest expense savings by refinancing their outstanding borrowings.
Avis Budget Group Inc. (CAR), the leading general-use vehicle rental company, announced that Avis Budget Car Rental, a wholly-owned subsidiary of the company, closed its offering of $500 million term loan borrowings priced at LIBOR plus 3.25% per annum, due 2019.
As per the company, proceeds from the offering will be used to refinance the outstanding $420 million of term loan borrowings due in 2014 and 2018 and $75 million of senior notes due in 2014. The new offering will result in savings of about $9 million in interest expense annually. Currently, we maintain a long-term Neutral rating on Avis Budget.
Earlier, CBS Corporation (CBS) followed the similar trend and announced the offering and redemption of debt, simultaneously. The company came up with a new debt offering of $700 million, priced at 3.375% due 2022 and subsequently declared the redemption of its $700 million outstanding 6.75% debt due March 27, 2056.
Such moves are quite obvious as the companies cannot bear to pay higher rates for long and in a time when debts can be issued with lower coupon rates. Currently, we maintain our long-term ‘Outperform’ rating on CBS Corporation.
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