Auto Rental News

JAN-FEB 2014

Magazine for the professional car and truck rental industry.

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INDUSTRY NEWS IN-DEPTH ADVANTAGE RENT A CAR: LOOKING BACK AND AHEAD Under new ownership once again, Advantage looks to keep its foothold in the discount leisure market. A BY CHRIS BROWN ADVANTAGE RENT A CAR HAS A NEW OWNER. CATALYST CAPITAL Group Inc., a Canadian private-equity frm, won its auction bid in December for the discount leisure brand, which was put into Chapter 11 bankruptcy by its previous owner, Franchise Services of North America (FSNA), in November. Catalyst is Advantage's ffth owner in seven years. ADVANTAGE'S TROUBLED RECENT HISTORY Advantage was founded in 1963 by the Walker family in San Antonio and served the commercial, leisure, government and replacement car rental markets. After Advantage began to incur debt in the middle of the last decade, mega-auto dealer Denny Hecker bought Advantage in 2006. In 2008, in the midst of accusations of improprieties regarding lease deals from Hecker's leasing company to Advantage, Hecker declared Advantage bankrupt. Hertz, under its operating unit Simply Wheelz LLC, bought Advantage out of bankruptcy in 2009 for $33 million. Advantage operated some 20 locations, serving mostly leisure destinations, at the time. In 2011, Hecker was sentenced to 10 years in prison after pleading guilty to wire and bankruptcy fraud. In late 2012, when the Federal Trade Commission (FTC) ordered the sale of Advantage as a condition of Hertz purchasing Dollar Thrifty, Hertz sold the brand to FSNA and Adreca Holdings Corp., a subsidiary of Sydney, Australia-based global investment bank Macquarie Capital. Macquarie committed $15 million in equity capital in exchange for a 49.76% stake in equity capital of FSNA. The FTC also required Hertz to divest 26 Dollar and Thrifty locations — the majority of which FSNA acquired for the Advantage brand. ANOTHER BANKRUPTCY Advantage's troubles didn't end under new management. Sandy Miller, FSNA's co-chairman and co-chief executive offcer, was fred by the FSNA board a month after the sale. Miller claimed in a lawsuit that Macquarie Capital engineered the ouster and that Advantage was under fnanced, mismanaging its feet and doomed to fail. In May 2013, FSNA brought in industry veteran William Plamondon, the former Budget CEO, as president of Advantage. In June, the FTC closed its investigation and fnally approved FSNA's acquisition of the brand. At the time, Advantage had started auctioning feet leased by Hertz — and was booking huge losses. According to FSNA, Advantage had sold 5,295 vehicles at auctions as of Oct. 25 and lost an average of $1,633 per vehicle. The total loss reached $8.6 million. Following the auto auction sales, FSNA said it requested that Hertz 10 January/February 2014 AUTO R ENTAL N EWS provide information about the "signifcant difference" between the book value of the Hertz vehicles and the fair market value. On Nov. 5, 2013, Advantage fled for bankruptcy. On Dec. 3, Catalyst — which calls itself "specialists in operational restructurings" — jumped in to supply Advantage with a $36 million bankruptcy DIP ("debtor-inpossession") loan. Catalyst became the primary bidder for Advantage, and its offer would forgive the full amount of the loan in exchange for the assets of Advantage. Catalyst and Sixt — a car rental company with a global footprint that landed in the U.S. in 2012 — were the only qualifed bidders for Advantage. Sixt elected not to submit another bid in response to a revised Catalyst bid in which Catalyst waived its right to demand full repayment of its loan to Advantage sooner than it was originally due. After the bankruptcy sale, Advantage settled its lease dispute with Hertz. Under the settlement — which the companies are working to fnalize — Hertz agreed to allow Advantage to continue using the vehicles in exchange for payments. Hertz will also pay Catalyst $2.75 million when the sale closes, and the deal gives Catalyst the option to purchase the leased vehicles. Advantage said that the settlement "will avoid the need to expend signifcant estate resources preparing for a contested fnal sale hearing, and also will avoid the potential for costly, wide-ranging, multiparty litigation between and among the various parties" to the agreement. THE FORESEEABLE FUTURE Advantage currently operates in 33 states, including airport locations serving 60 of the top 70 airports in the United States. According to court documents, Advantage will retain about half of its pre-bankruptcy locations. The majority of on- and near-airport locations to be jettisoned serve non-leisure destinations previously operated by Dollar and Thrifty. Nonetheless, Advantage is said to be giving up major airports such as JFK and LaGuardia — along with a handful of leisure destinations such as Sarasota, West Palm Beach and Tampa. Catalyst has retained Plamondon to run the new Advantage. In the meantime, according to court documents, Advantage has obtained feet fnancing for $50 to $100 million. "I strongly believe the industry needs the Advantage brand," commented industry consultant Neil Abrams. "This is a quarter billion dollar company with hundreds of thousands of real customers in the growth segment of a $24-billion industry. We need a strong independent that can fgure out how to make money. I believe the leadership is in place. All they need is a good feet plan, continue sound operating fundamentals and a focus on the markets where Advantage customers actually visit."

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