From the November 2007 issue of Treasury & Risk magazine

Gold AHA Award in Corporate Finance

Constructing a company by way of mergers and acquisitions is hard work. Taking one apart can be even more daunting. "I think the biggest challenge for us in finance and treasury was the sheer magnitude of what needed to be done in a short period of time," says David Wyshner, executive vice president, CFO and treasurer of what is now called Avis Budget Group.

Back in 1998, Cendant was involved in one of the nation's largest corporate accounting fraud cases, when its top management inflated revenues of the business and consumer services giant by $500 million. The company recovered, but its shareholders ultimately pushed management to agree to break up the conglomerate into four more narrowly focused enterprises: Realogy, Wyndham Worldwide, Travelport and Avis Budget Group.

That separation, announced by Cendant on Oct. 24, 2005, was implemented less than a year later in July 2006. It required a Herculean restructuring of the company's financing, so that each of the four new independent companies--all major multibillion-dollar players in their respective industries--would have adequate standalone financing. That task fell largely to Wyshner, treasurer since January 2004.

First, Wyshner and his team of Eric Fishman, Kevin Monaco, Rochelle Tarlowe, Liz Cohen, Michael Muller and Barry Goldschmidt had to unwind Cendant's capital structure, implement four new capital structures and ensure a seamless transition while minimizing any funding risk that could throw a wrench into the process.

They accomplished the first part--redeeming Cendant's $3.6 billion of corporate debt--by pre-funding near-term maturities and tendering for the remaining bond maturities. They also unwound interest rate swaps related to the legacy debt, and terminated some $4 billion of credit facilities.
Meanwhile, the treasury team developed a strategy to provide credit structures and debt appropriate to each of the new entities. Liquidity had to be ensured throughout a yearlong process. "Normally, a company might do one change of capital structure in a decade," recalls Wyshner. "Doing four at once was a monumental amount of stuff. There are a number of decisions that have to be made--each of which you'd like to spend days analyzing, but in a case like this you have to make them all very quickly."

"We made the decision early on that the capital structures would be different for each new company, so it wasn't a template that could be copied four times," says Wyshner. "Each unit had its own idiosyncrasies that had to be addressed." For example, in the vehicle rental business, it was decided that the company should be more leveraged, "so we negotiated more high-yield covenants and established provisions that allowed us to finance cars in the way we had been doing before," he explains.

The biggest surprise was an opportunity to sell one of the four units, Travelport, to the Blackstone Group in August of 2006 for $4.3 billion in cash. "Because that had become a possibility, we had to prepare that unit for both eventualities," says Wyshner. "You could say that there were really five financings we had to arrange."

In the end, Avis Budget had $2.4 billion of senior secured credit facilities and a $1 billion senior unsecured note; Wyndham Worldwide had $1.2 billion of credit facilities and an $800 million bridge facility; Realogy had $1.5 billion of senior credit facilities and a $1.23 billion bridge facility; and Travelport had $3.6 billion of "stapled" debt financing available for the fund-buyer's acquisition of the company. "All these financings were a negative synergy," explains Wyshner, "because Cendant, being the larger company and having all that diversification, was able to obtain better terms than any of the individual companies. We think the terms we got were reasonably attractive--as good or better than we had expected."


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