PE backers see $1bn return on Hertz

Clayton, Dubilier & Rice, The Carlyle Group and Merrill Lynch Private Equity reclaim almost half of their original equity investment in the rental car company via a debt-financing commitment.

Rental-car company Hertz, which was purchased in a $14 billion (€11 billion) leveraged buyout by three private equity firms six months ago, has received a $1 billion debt-financing commitment from six banks to fund its shareholder dividend, a regulatory filing shows.

Clayton, Dubilier & Rice, The Carlyle Group and Merrill Lynch Private Equity bought the company from Ford Motor Co. in December, commiting a total of $2.3 billion of equity to the deal, split three ways. The company also took on $5.6 billion of corporate debt, and $4.8 billion of financing against its US fleet of vehicles, with another $2.1 billion of debt being leveraged against its international fleet.

The debt financing is being provided by Deutsche Bank, Lehman Brothers Holdings, Merrill Lynch, Goldman Sachs Group, JP Morgan Chase and Morgan Stanley, according to a June 23 filing with the US’s Security and Exchange Commission. The loan is flexible, and Hertz has the option to defer cash interest payments.

On Monday Standard & Poor’s said that it may cut Hertz’s credit ratings because of the prospect of the increased leverage and the potential incremental debt. S&P gave Hertz a rating of BB-, three levels below investment grade.

The acquisition of Hertz, the world’s biggest car rental company by locations, stands as the second largest buyout of all time. All of the banks providing the financing except Morgan Stanley also advised the investor group on the acquisition last year.