Dollar Thrifty shifts credit agreement

Jul 15, 2008 (Tulsa World - McClatchy-Tribune Information Services via COMTEX) -- DTG | Quote | Chart | News | PowerRating -- Dollar Thrifty Automotive Group Inc., the Tulsa-based rental car company whose shares have plunged nearly 80 percent in the last two weeks, has modified a credit agreement with its lenders, company executives said.

Dollar Thrifty shares hit a 52-week low of $2.31 Monday before rising to close at $2.70, up 14 cents or 5.47 percent. More than 1.8 million shares were traded.

In a filing last week with the Securities and Exchange Commission, Dollar Thrifty disclosed that a majority of its lenders who have extended the company senior secured credit have agreed to an amendment of their credit agreement.

"The amendment modified the circumstances under which specified insolvency or bankruptcy events with respect to a monoline insurer under the company's asset-backed medium-term note programs would constitute an event of default under the credit agreement," Dollar Thrifty said in its SEC filing.

Dollar Thrifty executives, citing their second-quarter earnings release Aug. 5, declined to comment.

Industry analysts said the state of the economy and conditions in the travel sector make it likely that Dollar Thrifty would breach its credit agreement with lenders.

The credit agreement requires

Dollar Thrifty to maintain a ratio of corporate debt to earnings before interest, taxes, depreciation and amortization -- or EBITDA -- of no more than 3.5 to 1, industry analysts said.

Michael W. Gallo, who follows Dollar Thrifty for C.L. King & Associates in New York, said the company has outstanding corporate debt of $250 million. EBITDA is considerably less than that, he said.

"The industry is struggling with a host of difficult issues," Gallo said. "You have a banking system that's broken, and when you have an industry that continues to exist on capital, it looks like a (debt) covenant breach is likely, which would require them to obtain waivers or potentially refinance their debt."

Dollar Thrifty, which employs 8,500 people worldwide and about 970 in Tulsa, is bucking high fuel prices, a downturn in travel and high vehicle depreciation costs, analysts said. But because the industry is shedding capacity because of reduced travel demand, vehicle sales are now more important to the industry than vehicle purchases.

Dollar Thrifty's financial pain is heightened because of its long-term purchase contract with Chrysler, its former parent. Chrysler vehicles have a lower resale value than those of other manufacturers, Betsy R. Snyder, a credit analyst at Standard & Poor's, told Forbes.com earlier this month.

Standard & Poor's downgraded Dollar Thrifty's credit rating two weeks ago to B from B-plus.

"Ratings remain on credit watch because a sustained decline in the leisure travel market that the company has significant exposure to, as well as continuing weak used car prices, could result in ongoing earnings pressure," Snyder wrote in her analysis.

Jake Dollarhide, CEO of Longbow Asset Management Co. in Tulsa, said Dollar Thrifty's amendment and the fact that the company prepaid $60 million of its outstanding debt last month may give it a cushion and ensure survival.

But last week, before the disclosure of the credit amendment, Dollarhide was more pessimistic.

"Certainly, if things do not improve soon, Oklahoma may have one less publicly traded company to call its own," Dollarhide wrote in his periodic blog.

In its first quarter, Dollar Thrifty posted a $297.9 million loss, or a loss of $14.07 per share, compared with net income of $5.2 million, or 21 cents per share, in 2007's first quarter.

Gallo forecasts a second-quarter loss of 30 cents and a loss for the year of 71 cents.

D.R. Stewart 581-8451

don.stewart@tulsaworld.com

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