United Rentals last week announced that the company is prepaying today $400 million of its outstanding term loan. The company is using $200 million of available cash and $200 million drawn on its accounts receivable securitization facility to fund the $400 million principal repayment. The $400 million paydown is expected to reduce the company’s interest expense by 3 cents per share annually, according to a Jefferies analyst. Under the terms of the loan agreement, substantial repayments of the term loan are not due until 2010.
"We are taking advantage of our strong free cash flow to strengthen our balance sheet and reduce interest expense,” said Martin Welch, executive vice president and chief financial officer for United Rentals. “In addition to the $400 million prepayment of our term debt announced today, the company bought out $44 million of equipment under operating leases in the second quarter and announced the redemption of $63 million of the 6½ percent convertible quarterly income preferred securities.”
The company's total debt (excluding subordinated convertible debentures) was
$2.9 billion at June 30, 2006, including $733 million outstanding under the term loan. Amounts repaid under the term loan may not be re-borrowed.
Yvonne Varano, Jefferies analyst, last week estimated that United would pay 2 to 3 cents per share in 3Q06 to reduce the debt and reinforced the company’s “Buy” rating, maintaining its current price target of $39 per share.
Greenwich, Conn.-based United Rentals is No. 1 on the RER 100.