Budget Files for Chapter 11 Bankruptcy Protection
Budget Group voluntarily filed for Chapter 11 bankruptcy protection in Delaware on Monday, July 29, citing the need to reduce its non-vehicle debt and secure new capital investment. The filing also affects certain domestic subsidiaries of the company."Despite the success of our efforts to increase productivity and rationalize costs, the impact of Sept. 11 and the continued recession in the travel sector has left Budget Group with a level of non-vehicle debt greater than our operations can reasonably support, said Sandy Miller, Budget Group's chairman and chief executive officer. "We believe that Chapter 11 will accelerate our plan to reduce our non-vehicle debt and will pave the way for new capital investment in the company."In a statement released to the media, Budget Group said the Chapter 11 filing represents the next step in the company's ongoing recapitalization effort. The company added it's continuing to pursue a solution to its capital structure issues and expects to make an announcement soon.According to industry insiders, one potential solution could be the sale of Budget Group to Cen-dant, parent company of Avis. Reports of Cendant's interest in the acquisition have surfaced regu-larly in recent months. Budget Group said the Chapter 11 process will have no impact on day-to-day business operations or its ability to provide service to its customers. All customer reservations will be honored and rental services will continue as usual. Budget's domestic and international franchisees are not involved in the Chapter 11 filing. Budget added that it has secured a commitment for $750 million of vehicle financing to maintain and grow its fleet of vehicles. In addition, the company has received a commitment for up to $100 million of debtor-in-possession (DIP) financing that will provide credit enhancement for its fleet financing and working capital to support its domestic day-to-day operations.In connection with the DIP financing, Budget's existing bank group has agreed to continue to provide letters of credit to the company during the Chapter 11 process to support its fleet financing. The DIP financing is subject to approval by the bankruptcy court and other conditions.Budget said it expects that the DIP financing, available cash on hand, and cash flow from opera-tions will be sufficient to meet normal business obligations during the Chapter 11 process."Combined with a continued focus on improving our performance, reducing our non-vehicle debt through the Chapter 11 process and finalizing a solution to our capital structure issues are the right strategic steps to strengthen Budget's market leadership and future growth prospects," Miller said.