Car Rental Punts Are Turning Into Big Profits for Bond Traders
By Lucca de Paoli
(Bloomberg) — Bond traders who risked it all on battered-
down car rental debt during the pandemic are now reaping the
rewards.
Europcar Mobility Group’s hedge fund owner are poised to
double their money after Volkswagen AG buys the company. Avis
Budget Group Inc.’s euro-denominated notes due in 2026 are
trading above par, compared with 45 cents in May 2020. Hertz
Global Holdings Inc.’s stock started trading over-the-counter
under a new ticker last month, following its return from
bankruptcy.
After being forced to sell off their fleets as demand
collapsed, the gradual reopening has turned rental firms’
fortunes around. Not only are there more customers, companies
are benefitting from higher pricing for their services as a
computer-chip bottleneck holds up output of new cars.
Revenues are underpinned by a “continued mismatch between
the fleet levels and demand,” according to analysts at Spread
Research, who have an overweight rating on Avis’ longer-dated
eurobonds. The chip shortage is reducing the supply of new cars
and pushing up the cost of second-hand vehicles, helping keep
prices higher in the rental market.
“The good momentum experienced in the second quarter is
expected to continue into the summer,” the analysts said.
Read More: Good Luck Finding a Cheap Rental Car This
Summer: Chris Bryant
A group of five Hedge funds including Anchorage Capital
Group, Marathon Asset Management and King Street Capital
Management bought most of Europcar’s 1.1 billion euros ($1.3
billion) of debt for as low as 40 cents on the euro at the
height of the first coronavirus wave. Their investment, which
gave them a 60% stake after a debt-for-equity swap in February,
was valued at more than 1.5 billion euros by the German carmaker
last week.
After posting a huge loss in the second quarter last year,
New-Jersey based Avis reported its highest-ever adjusted
earnings figure on Tuesday.
In February, Avis seized on investor demand for higher-
yielding assets and sold $600 million of bonds to pay back notes
it issued in the height of the pandemic, significantly reducing
the interest it pays.