NEW YORK -- (BUSINESS WIRE) -- Nov. 21, 2001 -- Fitch has rated Cendant Corporation's (Cendant) $1 billion 3 7/8% convertible senior debentures due 2011 `BBB+'. The issue ranks pari passu with existing senior debt. The company's senior debt and commercial paper ratings remain on Rating Watch Negative pending review of Cendant's operations post-Sept. 11. The immediate aftermath on Cendant's operations has not been as negative as originally anticipated by Fitch.
Proceeds from this offering will be used to repay Cendant's $550 million of 3% convertible subordinated notes due February 2002 at which time Fitch will withdraw its `BBB' subordinated debt rating. The remaining $450 million of proceeds will be used to prepay a portion of the principal securities class action litigation settlement in the first quarter of 2002. With the prepayment, the litigation settlement liability will be reduced to approximately $1 billion down from the $2.85 billion original judgement.
The `A' senior debt and `F1' commercial paper ratings of Cendant's wholly owned subsidiary, PHH Corp., remain on Rating Watch Negative reflecting the Rating Watch on Cendant and the subsequent implications that may occur with PHH. Fitch is evaluating its existing notching policies with respect to Cendant and PHH, and may look to reduce or eliminate this ratings distinction.
Importantly, the length of the downturn in the travel industry and any recovery will dictate any rating changes. Fitch will continue to monitor key drivers, such as vacancy rates at hotels, the number of airline flights and load factors, willingness of consumers to take vacations and car rental usage, over the next several months.
Mitigating the expected negative impact on cash flow are: a sizable cash position and an adequate liquidity position, diversified operations that provide continuing cash flow; and recent acquisitions that are still expected to be accretive.
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