Design and impacts of securitized leveraged buyouts

Figures & data

Figure 1. Securitized LBO relationships.

Table 1. Operating returns following Hertz’s securitization

	Year−1	Year 1	Year 2
Panel A: Changes in operating performance
EBITDAIndustry-adjusted ratio^a	1.0811.78	−1.156.89	−16.871.39
Panel B: Changes in operating performance ratios
EBITDA/assetsIndustry-adjusted ratio^a	0.1517.62	11.7627.55	−3.2613.21
EBITDA/salesIndustry adjusted ratio^a	0.3514.78	−6.405.73	−3.3412.82
Panel C: Changes in assets
Total assets	18,677,401	−11.91	−14.33
Cars	8,003,781	−4.60	2.52
Employees	29,350	−15.16	−21.46
Panel D: Profitability ratios
EBITDA margin	40.36	22.24	36.64
EBIT margin	13.67	−6.31	6.26
Cash flow/turnover	23.25	25.29	25.42

Notes: Year−1 is the fiscal year ending prior to securitization transaction completion. Year 1 is the fiscal year of securitization transaction completion.

^a Industry-adjusted ratio for a given period equals the difference between the ratio for Hertz’s and the median ratio for a sample of companies in the same industry that period.

Table 2. Re-investment in business—Fleet change (net book value basis) $ in millions

	Q409	Q408	FY09	FY08
Beginning fleet	$1,869.7	$2,362.3	$2,154.9	$2,639.9
Additions	29.5	25.8	88.6	267.3
Disposals	(21.9)	(160.6)	(137.6)	(447.6)
Depreciation, net (Maintenance capex)	(65.8)	(80.3)	(294.4)	(312.3)
Ending fleet	$1,811.5	$2,147.2	$1,811.5	$2,147.2
Fleet capex, net (Growth capex)	($58.2)	($215.1)	($343.4)	($492.7)
Disposals (1st cost basis)	($56.4)	($196.5)	($399.4)	($591.5)

Table 3. Measures to streamline operations and services

Year	Priority areas	Specific management initiatives
2007	Cost savings via reductions in workforce	Job reductions affecting approximately 2,030 employees worldwide. Most reductions occurred in the US car rental corporate headquarters.
	Organizational restructuring initiatives	Actions taken to right size business included outsourcing select functions globally, including information technology, real estate facilities management, and construction and procurement. Project Alpha was implemented to reduce costs. The project defined 200 + sub-processes and 15 domains.
2008	Cost savings via reductions in workforce	Implemented job reductions affecting approximately 7,000 employees in the US and European car rental operations (19% of global workforce). There were much smaller reductions occurring in the US-based operations.
	Asset efficiency management	Closed approximately 248 off-airport locations, and the US equipment rental business initiated the closure of 22 branch locations.
	Organizational restructuring initiatives	Business Process Reengineering (BPR) projects were launched in nearly all areas. Implemented Lean and Six Sigma to reengineer processes for increased efficiency Merged back office operations Renegotiated third-party vendor contracts Standardized, streamlined, and globalized processes Identified & implemented global best practices Business process outsourcing (BPO) partnerships were established with IBM, CBRE, ICGC, CDI, ACS, and OCE.
	Customer support	Provided rental services from those locations that had a loyal customer base. Also introduced self-service kiosks at airport locations
2009	Cost savings via reductions in workforce	Headcount reduced by more than 4,000 employees. Incurred job reductions with an emphasis on eliminating non-customer facing jobs.
	Organizational restructuring initiatives	Continued rolling out BPR projects Developed culture of continuous improvement Instilled process & project discipline
	Asset efficiency management	Accelerated fleet reductions as fleet 4.5% smaller year-over-year. Rationalized location footprint, including closing down locations
	Customer support	Optimized mix—richer mix of fleet (BWM, Mercedes, Audi, etc.) Captured longer length transactions to reduce vehicle turnover and associated maintenance and customer service costs