Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



3 Companies Slashing Interest Expense

There are many times in business where issuing debt is the most sensible move available. But companies need to watch their interest expenses as well -- a poorly managed debt load can result in a large part of a company's revenues going to service that debt.

But these three companies are taking action to reduce interest expense and improve their balance sheets.

Flag-carrying airline
Air Canada (TSX: AC.B  ) is no stranger to the world of debt. Debt loads and a poor economy created a poor outlook for Air Canada during the summer of 2012 when shares of the airline fell into the penny-stock range. But the airline has made meaningful strides in managing its debt.

Thanks to an improving outlook for Air Canada and the airline industry in general, the Canadian flag carrier was able to complete a $1.4 billion refinancing transaction in September of this year. Air Canada retired notes yielding 9.2%, 10.1%, and 12.0%, refinancing them with notes yielding 6.7%, 7.6%, and 8.7%. The move not only lowered Air Canada's cost structure but it also extended the maturity of the debt by four years giving the airline more flexibility in the near term.

Shares of the airlines have had a strong negative aura of debt surrounding them and this move helps to reduce this drawback to owning Air Canada shares.

Leading legacy airline
The term "legacy airline" rarely is associated with financial responsibility, but Delta Air Lines (NYSE: DAL  ) is trying to change that image with its actions regarding its debt load. In 2009, Delta's net debt hit $17 billion but the airline has been taking action to change that in recent years.

By 2012, Delta had reduced its net debt to $12 billion but the airline isn't stopping there. Targets call for slashing this net debt by another $5 billion by 2017. Delta claims this debt reduction strategy will save the airline more than $750 million in interest expense.

Delta's improving financial health has even allowed the airline to reinstate a dividend and launch a share buyback program, which is unusual among legacy airlines.

Car rental
A major bearish point of contention surrounding Hertz Global Holdings (NYSE: HTZ  ) is the car rental company's debt load. Not only has Hertz been subject to ownership by private equity and the large costs relating to purchasing and renewing a massive fleet of vehicles, but the acquisition of Dollar Thrifty put even more debt onto Hertz's balance sheet.

Hertz is making moves to refinance its debt; its Dutch subsidiary issues 4.4% notes due in 2019 to finance the repurchasing of 8.5% notes due in 2015. Similar to the refinancing at Air Canada, this move both reduces Hertz's interest expense and delays debt maturity to provide additional flexibility.

Debt management
Properly managed debt can fuel the greatest companies while poorly managed debt can destroy otherwise healthy companies. Air Canada, Delta Air Lines, and Hertz Global Holdings have all taken steps to manage their large debt loads. These are important steps to rebuild investor confidence and attract new investors. Additionally, a stronger balance sheet makes it easier for these companies to issue new debt if this is required to meet obligations or pursue a new opportunity.

More Foolish insight
Even with debt reduction at these companies, they still carry debt related risks going forward. A great balance for these stocks are solid dividend-paying stocks to maintain value and generate income. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2727726, ~/Articles/ArticleHandler.aspx, 9/27/2016 10:13:17 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 57 minutes ago Sponsored by:
DOW 18,228.30 133.47 0.74%
S&P 500 2,159.93 13.83 0.64%
NASD 5,305.71 48.22 0.92%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
AC.B $0.00 Down +0.00 +0.00%
AIR CANADA, CL.B CAPS Rating: No stars
DAL $39.21 Up +1.17 +3.08%
Delta Air Lines CAPS Rating: ***
HTZ $41.55 Down -4.63 -10.03%
Hertz Global Holdi… CAPS Rating: ***