Rent-A-Center, Inc. (RCII) announced that the refinancing of a relatively large senior credit facility worth $900 million has been completed. This comprised a $225 million term loan and a $675 million revolving credit facility.
It was in Feb 2014 when the company declared that it will enter into an $850 million worth of senior credit facility, comprising of a $350 million term loan and $500 million revolving credit facility.
Rent-A-Center expects to have better access to capital and reduce the average cost of debt due to the significant size of the credit facility. Moreover, the company’s latest move will provide financial flexibility to continue enhancing shareholder returns. However, the refinancing transaction is likely to drag 2014 earnings by 8 cents.
Rent-A-Center had last refinanced a credit facility ($750 million senior credit facility consisting of $250 million in term loans and a $500 million revolving credit facility) in July 2011.
Recently, the Federal Reserve announced that it would keep interest rates low even after achieving the targeted unemployment rate of 6.5% and inflation of 2%. Even the borrowing costs will be low as the economy is not ready for higher rates.
With borrowing costs remaining low, it will be easier for companies to obtain financing, providing opportunities for long term growth.
Rent-A-Center offers consumer electronics, appliances and furniture products under rental purchase schemes that allow customers to own the merchandise upon completion of the rental period. Due to continued tightening of the credit market, customers see rent-to-own as a more flexible and viable option compared to credit. However, the sluggish economic recovery and a weak job market could make customers reluctant to enter new rental-purchase deals.
Currently, Rent-A-Center has a Zacks Rank #5 (Strong Sell), reflecting lower-than-expected results in the third and fourth quarters of 2013, and a cautious outlook due to macroeconomic headwinds challenging the company’s Core U.S. segment.
However, not all finance stocks are as unfavorably placed as Rent-A-Center. Investors interested in the same sector could consider Tree.Com Inc. (TREE), World Acceptance Corp. (WRLD) and Discover Financial Services (DFS). All of these carry a Zacks Rank #2 (Buy).