Hertz launches fundraising roadshow

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Hertz on Wednesday launched its attempt to raise funding for the second biggest leveraged buy-out in history, providing another test of investor appetite for such deals.

Nine of the biggest ever private equity deals have taken place this year, according to Dealogic, as investors seek to release some of the record amount of cash on corporate balance sheets. TDC, the Danish telecoms company, on Wednesday agreed to be bought out by a team of private equity groups for $12bn.

Hertz’s banks held their first meetings with investors in Europe on Wednesday to discuss the $2.8bn of bonds they are selling as part of the $15bn deal’s financing. The roadshow moves to the US next week.

Ratings agencies have provisionally classed the bonds as high yield, or “junk,” meaning Hertz will pay higher interest rates than if the notes were classed as investment grade.

“Deals are getting done, but the market hasn’t been as strong as some of these groups anticipated this year,” said Fara Lupiano, credit analyst at CreditSights.

Some buy-out groups have been forced to cut the size of their bond offerings, as retailer Neiman Marcus did in September, and turn instead to the syndicated loan market.

However, market participants expect good demand for the Hertz offering, which is expected to price the week after next.

“At this time of year, guys are usually watching to see that they don’t screw up their bonus but there is a lot of cash around and if it’s fairly priced, they’ll buy it,” said one capital markets professional of Hertz’s offering.

Bond issuance has recently picked up in both the US and Europe after a jittery September and October.

Peter O’Malley, head of US debt capital markets at ABN Amro, which was involved in the successful financing of the buyout of Italaian telecoms group Wind telecoms buyout, said: “A lot of people have been waiting for the thing that’ll go bump in the night and smash the market this year – whether it be housing markets falling or the autos getting downgraded – and it hasn’t really happened.

“Yields are low, spreads are still historically tight and most people are still flush with cash.”

The rash of buyout deals is however encouraging bankers to come up with some new financing mixes to tempt investors.

Hertz’s deal includes $8bn in asset-backed securities based on the group’s car fleet. This week, bankers for Dubai-based DP World’s takeover of P&O, the UK ports and ferries group, offered an innovative Islamic bond as part of the $9.3bn financing package while earlier this year, Toys R Us issued bonds backed by real estate as part of its $8.2bn buyout.

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