Photo of David Calabria, Treasurer and SVP of Corporate Finance and Tina Daroszewski, Assistant Treasurer.

Outstanding response to pandemic delivers huge savings at Avis Budget Group

The challenge

When COVID-19 struck, Avis Budget Group’s (ABG) business came to a grinding halt as travel, stay at home orders and lockdowns essentially shut down business and leisure travel. During Q2 of 2020 revenue declined by 67%. Hertz, a major competitor, filed for bankruptcy and there were concerns ABG would suffer the same fate. All plans were put on hold and the company quickly decided to focus on four key areas to ensure survival, namely reducing headcount, eliminating non-essential expenditures, reducing fleet and bolstering liquidity.

“We quickly set ourselves a challenging goal to remove US$2.5bn in costs,” explains David Calabria, Treasurer and SVP of Corporate Finance.

The solution

The team removed more than 100,000 vehicles and negotiated with original equipment manufacturers (OEMs) to cancel over 185,000 incoming vehicle orders. ABG also sold 250,000 vehicles worldwide at a profit. The company amended its credit agreement (US$1.8bn revolver facility) with 28 banks to provide a covenant waiver and increased the amount of authorised secured debt by US$750m. Calabria and the treasury team also extended the company’s €1.7bn European and AU$350m Australian asset-backed securities (ABS) facilities.

Additional capital to augment liquidity was also raised with the completion of a US$500m senior secured notes offering in May 2020, a US$350m add-on to the existing senior unsecured notes due 2027 (to eliminate 2023 corporate maturities), a secured US$35m floor plan financing facility to accelerate direct to consumer vehicle sales and a US$650m auto-rental ABS offering. These were landmark transactions in terms of opening the high-yield and ABS market for the rental car industry and were all executed in a very challenging business environment.

ABG also operated with 60% fewer employees compared to pre-pandemic headcount levels.

In addition to the above, ABG also addressed its ongoing cash management processes including a plan to leverage its existing virtual card platform. “As the virus began to surge, we quickly realised that we needed to fortify our liquidity position and ensure we were protected throughout the pandemic. Of the many steps we took, utilising the virtual card product was an integral step in maximising our working capital, and we were thrilled with the strong participation from our vendors further demonstrating how the product works for both Avis Budget Group and our vendors,” says Calabria.

Best practice and innovation

The stock price and investor’s confidence in ABG is evidence of how the team has managed the crisis. Since the darkest days of the pandemic, Avis’s stock price has increased by 728% and is at an all-time high of US$77.04, unimaginable for many, but not for Calabria.

While it has taken bank lenders plus bond, ABS and equity investors, time to understand that ABG would not succumb to the same Chapter 11 fate as Hertz, Calabria has been tirelessly working both behind the scenes and publicly in another of his many roles as the head of Investor Relations to educate external constituents that it is time to finally turn the page. And the efforts have succeeded. He and the treasury team have since refinanced their highest interest rate high-yield bond with new high-yield bonds at record low interest rates further fortifying the company for years to come.

Key benefits

• • US$2.5bn cost savings.
  • Fleet reduced.
  • Liquidity improved.
  • Funding actions will save the company more than US$26m per annum.

“As a 15-year employee of Avis Budget, 2020 was by far the most challenging year in my career. The scare of the pandemic and the unknown long-term impact to the travel industry was very concerning. There was a team of us working so hard to expand the programme, we were seeing the results and we knew we were directly impacting the future of our company”, said Tina Daroszewski, Assistant Treasurer.

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