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Investing.com -- Moody’s (NYSE:MCO) Ratings has stated that the definitive agreement made by Herc Holdings Inc. (NYSE: NYSE:HRI) to acquire H&E Equipment Services, Inc. (NASDAQ: NASDAQ:HEES) is credit negative. The transaction, which is 75% cash and 25% equity funded, is expected to increase Herc’s pro forma debt-to-LTM EBITDA to 4.1 times at December 31, 2024, up from about 3.1 times. The transaction is largely debt funded, which is the main reason for the credit negative view.
Despite this, Moody’s has maintained Herc’s Ba2 corporate family rating and stable outlook. Similarly, H&E’s ratings, including the Ba3 corporate family rating, are still under review for potential upgrade.
Herc has secured $4.5 billion of fully committed financing and is expected to draw on the existing ABL facility. The exact composition of the additional debt is yet to be determined.
The acquisition is expected to increase Herc’s size and scale, including its workforce and real estate position. It will also likely strengthen Herc’s position as the 3rd largest rental company in North America, in terms of revenue. The company anticipates over $125 million of annual cost synergies and an EBITDA impact of about $175 million from revenue synergies within the first few years of closing.
However, the transaction is not without its risks. It is subject to the tender of a majority of H&E’s shares, regulatory approvals and other customary closing conditions. The acquisition also presents integration risk. The transaction is expected to close mid-year 2025.
Herc, based in Bonita Springs, Florida, is an equipment rental company with around 400 branches across 42 states and five provinces in North America. The company’s basic fleet includes aerial work platforms, earthmoving and material handling equipment, trucks and trailers, air compressors, compaction and lighting. Its specialty fleet consists of its ProContractor professional grade tools and ProSolutions offerings, which include power generation, climate control, remediation and restoration, and studio and production equipment.
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