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Rent-A-Center Refinances Debts

Zacks Equity Research

One of the largest rent-to-own operators in the United States, Rent-A-Center Inc. (NasdaqGS:RCII - News), in an effort to enhance the company's financial flexibility and lower its interest expenses, has completed refinancing of its senior credit facility.

The total amount of new credit facility is $750.0 million of which $250.0 million are in the form of a term loan and $500.0 million in a revolving credit facility. The company has already utilized its $250.0 million term loan and $100.0 million revolving credit facility for repaying its existing senior term debt of approximately $358.0 million.

The move, aimed toward making the company more financially flexible, will facilitate the company to focus on future growth prospects. Moreover, it will also result in an interest savings of approximately 100 basis points. As the credit market has normalized and funds are available at cheaper rates, it is very prudent to repay the high cost obligations.

Prior to this, in an attempt to expand its operational roots, the company has opened new stores in Gulfport, Mississippi and New Orleans and is providing them additional avenue to own luxury furnishings, electrical devices, electronics and computers.

The new 5,000-square-foot showroom in Gulfport and the 3,000-square-foot showroom in New Orleans will offer brands like HP, Ashley, Sony, Serta and Whirlpool. Rent-A-Center operates 38 and 47 locations in the states of Mississippi and Louisiana, respectively.

Rent-A-Center remains optimistic about its future growth as it opens stores in international markets and accelerates the rollout of RAC Acceptance kiosks. For fiscal 2011, management plans to open approximately 25 domestic rent-to-own stores. The company also hinted that it has been evaluating strategic alternatives for its financial services' businesses, which may or may not include the divestiture of the segment.

Rent-A-Center is taking prudent steps to optimize rental merchandise levels in accordance with the sales trends. The company implemented a centralized inventory management system, including automated merchandise replenishment. Moreover, a new centralized purchasing system allows it to better manage the rental merchandise.

Rent-A-Center is one of the largest rent-to-own operators in the U.S. and leverages an extensive network of about 3,000 stores to effectively penetrate into its target markets and gain a competitive advantage over its competitors Aaron's Inc. (NYSE:AAN - News) and Advance America.

Rent-A-Center offers consumers electronics, appliances and furniture products under rental-purchase schemes that allow them to own the merchandise on the completion of the rental period. Due to the continued tightening of the credit market, customers witness rent-to-own as a more flexible and viable option compared to credit. However, a sluggish recovery and a fragile job market may make customers reluctant to enter into the new rental purchase deals.

Currently, Rent-A-Center's shares maintain a Zacks #3 Rank, which translates into a short-term 'Hold' recommendation. However, we have a long-term 'Neutral' recommendation on the stock.

RENT A CENTER INC (RCII): Read the Full Research Report

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