Avis Raises $500 Million of Junk Bonds to Weather Shutdown

(Bloomberg) -- Avis Budget Group Inc. tapped the junk bond market for $500 million, the latest company to borrow at double-digit rates to ride out the travel shutdown.

The rental-car company sold secured notes to yield 11.297%, according to people with knowledge of the matter. Avis was able to boost the size of the deal from $400 million, the people said, asking not to be identified as the details are private.

Joining Avis in the high-yield market Tuesday is Norwegian Cruise Line Holdings Ltd., which is sounding out investor interest for $600 million of four-year notes that may pay a coupon of 12.5%. Other companies hit hard by the virus like Carnival Corp. and AMC Entertainment Holdings Inc. have also recently borrowed at rates over 10%.

Read more: Junk-Bond Sellers Desperate for Funding Swallow Yields Over 10%

Rental-car companies have been struggling as governments halt global travel to help stem the spread of the coronavirus. Avis's rival Hertz Global Holdings Inc. said Tuesday its lenders will allow some extra breathing room after it missed debt payments, averting a potential bankruptcy.

“Avis is making a case that it can fund the cash flow hole” created by travel closures with a combination of this new bond deal and other debt, CreditSights chief global strategist Glenn Reynolds wrote in a report Monday. “The main asterisk in the revenue picture is that air travel, vacation planning, business travel, and how that all relates to the path of Covid is not easy. That is determining the credit fates for a lot of companies and industries.”

Avis, which had a stronger balance sheet going into the crisis, recently amended its debt covenants to enable it to sell as much as $750 million of secured bonds. It expects to burn $800 million of cash in the current quarter, management said in reporting earnings Monday.

The deal comes with new restrictions seen in other recent high-yield offerings. Avis can't use the proceeds for certain restricted payments like dividends or share buybacks for at least a year, and must meet leverage ratio criteria to do so, according to an analysis from Covenant Review.