Photo of Peter Jameson, Bank of America Merrill Lynch, John Murray, Citi, Mustally Hussain and Chet Stefanski, Herc Rentals Inc. and Phil Lamariana, J.P. Morgan.
Our Top Treasury Team 2017 accolade goes to Herc Rentals who have truly established a classleading treasury department, within a very short period of time. The speed at which this particular department mobilised itself and tackled a host of challenges after a transformational spin event in September 2016 is remarkable.
Vice President and Treasurer
Herc Holdings Inc. (Herc), which operates through its Herc Rentals Inc. subsidiary, is one of the leading equipment rental suppliers in North America with approximately 270 company-operated locations in the United States and Canada. With its business extending back over 50 years, Herc is a full-line equipment-rental supplier in diverse end markets, including large and small companies in the construction industry, the industrial sector (such as large industrial manufacturing plants, refineries and petrochemical operations) and other customers in more fragmented industries (governmental entities/contractors, disaster recovery and remediation firms, infrastructure, railroads, utility operators, individual homeowners, entertainment production companies, agricultural producers, special event management and facility management firms). Herc reported revenues of nearly US$1.6bn with US$3.5bn in assets and approximately 4,800 employees in its 2016 10-K.
in partnership with
Spin-off creates unique challenge for treasury at Herc
Herc began its new listing on NYSE in June 2016, following its separation from the vehicle rental operations of Hertz Global Holdings. The spin-off created unique challenges for the new treasury department (“Herc Treasury”). As a newly stand-alone public company, the enterprise had to quickly create an independent treasury organisation while transitioning and optimising the work streams within six months of the separation. Herc Treasury faced the challenges of disentangling from the former parent, creating new partnerships and overhauling the banking platform to create an end-to-end liquidity management process. Herc had inherited legacy retirement benefit plans and needed to establish a stand-alone investment management platform. In addition, the new enterprise – levered with over US$2bn of first and second lien secured debt with a bank group comprising over 20 partners – faced challenges to manage balance sheet risks, ensure compliance with these complex debt arrangements and recalibrate overall banking relationships.
Mustally Hussain, Vice President and Treasurer, says, “As the treasury department for a newly stand-alone public company, we were faced with the challenge of creating new analytical infrastructure, processes and operating models. Strategically, the task was to understand the business needs from a capital and liquidity management perspective and develop a financial strategy to meet these needs.”
A strategic plan was developed to define the mandate/structure and solve challenges of the new treasury department. The department structure was designed to cover a centralised treasury organisation with three domains:
Banking and treasury operations.
Corporate finance and strategic planning.
Capital markets and exposure risk management.
Mr Hussain explains, “We on-boarded core and competent talents in the above domains within a short period of time. An implementation plan was put together with the help of a consulting partner with milestones tracked on a weekly basis. The combination of strategic and tactical planning enabled Herc Treasury to terminate the services under the Transition Services Agreement (TSA) with the former parent well in advance of the initial schedule, reducing significant TSA fees.” As a result, Herc Treasury was one of the first departments to operate autonomously from the former parent.
Banking and treasury operations had various working parts that needed to be pieced together to create an end-to-end liquidity management process. Herc Treasury worked with banking partners not only to optimise cash applications and lockbox processing but also to redesign a new customised depository process, enabling remote capture technology to make store deposits. The team also worked with technology partners to enhance payment processing by eliminating over-funding. Despite limited historical data, a rolling 13-week cash forecast model with a target cash balance was created by partnering across the enterprise to manage day-to-day cash operations. Utilising this tool, Herc Treasury reduced the daily target balance by over 30% and optimised the cash level, realising significant annual interest expense savings.