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Avis Budget Group Slides 7% Amid $400 Million Debt Offering

Shares in Avis Budget Group (CAR) dropped 7% in pre-market U.S. trading after the rental car company announced plans to raise $400 million in debt in a private offering.

The stock plunged 7% to $12.94 in pre-market U.S. trading on Monday.

Avis Budget Group said its wholly-owned subsidiaries, Avis Budget Car Rental, LLC and Avis Budget Finance, Inc., will offer $400 million in aggregate principal amount of senior secured notes due 2025 in a private sale.

The notes will be guaranteed by Avis Budget Group and certain of its U.S. subsidiaries, the company said. It intends to use the net proceeds from the notes offering for general corporate purposes.

The Avis Budget Group has more than 11,000 rental locations in about 180 countries around the world. Its Zipcar brand, a leading car sharing network, counts more than 1 million members. 

Car rental companies are exploring channels to beef up its finances after the coronavirus pandemic stalled demand for its services. Avis Budget Group and other affected companies in the car rental industry have asked the U.S. government to expand its $2.3 trillion stimulus program to provide aid for tourism-related businesses.

Rival Hertz Global Holdings Inc. (HTZ), whose largest shareholder is billionaire investor Carl Icahn, is said to be working with debt restructuring advisers to help it cope with its $17 billion debt pile, Reuters reported at the end of last month.

Five-star analyst Ryan Brinkman at J.P. Morgan at the end of April cut Avis stock to Hold and Hertz stock to Sell, saying the car rental sector is the worst positioned in the auto industry.

“Many companies have also instituted freezes on business travel and it could be some time (with low visibility into exactly how long) until consumers feel confident to resume levels of leisure travel similar to before the outbreak," Brinkman wrote in a note to investors.

Overall, Wall Street analysts have a Moderate Sell rating on Avis shares based on 5 Holds and 2 Sells. The $13.33 average price target indicates the stock has 4.1% downside potential in the coming year. (See Avis stock analysis on TipRanks).

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