TSX-V Trading Symbol: FSN
RIDGELAND, MS, Nov. 4, 2013 /CNW/ - FRANCHISE SERVICES OF NORTH AMERICA INC. ("FSNA" or the "Company") (FSN.V) announces that its wholly-owned subsidiary, Simply Wheelz LLC
("Simply Wheelz"), which does business as Advantage Rent A Car ("Advantage"), has determined to file for U.S. federal bankruptcy protection in the
federal bankruptcy courts of the State of Mississippi. It is expected
that Advantage will file for protection on Tuesday, November 5, 2013.
Advantage operates from 72 corporate locations in 33 states including
airport locations serving 60 of the top 70 airports across the United
States. Advantage is the fourth largest independent car rental company
in the United States.
FSNA acquired the Advantage business from Hertz Corporation ("Hertz") through a series of transactions completed earlier this year. Hertz
was required to divest the Advantage business as part of its
acquisition of Dollar Thrifty Automotive Group, Inc. pursuant to a
decision and order of the Federal Trade Commission (Docket No. C-4376)
made on July 10th, 2013 (the "FTC Order"). Simply Wheelz acquired approximately 24,000 vehicles from Hertz
(the "Hertz Leased Fleet") as part of the acquisition of Advantage pursuant to two fleet leases
(the "Master Lease Agreements"). The Master Lease Agreements require Simply Wheelz to bear the
residual value risk of the Hertz Leased Fleet. Simply Wheelz, as part
of ordinary course fleet management activities, began to sell, at
auction, vehicles forming part of the Hertz Leased Fleet commencing in
June 2013 and immediately began to experience significant losses on
these sales. As of October 25, 2013, Simply Wheelz had sold 5,295
vehicles through the Manheim auctions for an average loss of
approximately $1,633 per vehicle, and a total loss of approximately
Given the significant difference between the book value of the Hertz
vehicles and the fair market value realized at auction, the Company
requested information from Hertz to determine the basis on which Hertz
had calculated the net book value of the Hertz Leased Fleet. Despite
repeated requests, Hertz has not yet provided the Company with such
information notwithstanding the view of the Company that Hertz is
contractually obligated to do so. Without access to this information,
FSNA was unable to accurately quantify the potential loss it would
experience as a result of its disposition of the Hertz Leased Fleet.
In light of this uncertainty, FSNA's largest shareholder advised the
Company that it was not prepared to participate in the non-brokered
private placement of special warrants announced on September 4, 2013.
On October 10, 2013, FSNA determined that without the participation of
its largest shareholder, it would not be proceeding with the private
placement on the terms previously announced and began to seek
alternative sources of financing.
On or about October 9, 2013, Simply Wheelz was required to make a
payment to Hertz under the Master Lease Agreements. Simply Wheelz has
not yet done so. FSNA entered into talks with Hertz in mid-October
with a view to restructuring Simply Wheelz' credit arrangements with
Hertz while it looked for new sources of capital. Those discussions did
not result in an agreement to restructure the Master Lease Agreements.
However, on October 23, 2013 Hertz agreed to forbear from enforcing its
rights under the Sublease Agreements until November 1, 2013.
Hertz has made offers to provide interim financing in order to complete
a sale process in the context of an insolvency of Simply Wheelz.
Following extensive discussions with Hertz, FSNA elected not to accept
the proposed terms as the board and management of the Company believed
those terms would not facilitate a broad auction of the Advantage
business, in which the value of those assets would be maximized.
Management believed that such terms may have been designed to ensure
that Hertz would be the likely purchaser. Further, the Company believes
that the United States Federal Trade Commission would not support a
sale of Advantage to Hertz in light of the FTC Order. Last, the terms
proposed by Hertz required that Simply Wheelz enter insolvency
proceedings whereas management of the Company believed at that time
that a going concern restructuring was possible
Since October 25, 2013, FSNA has been engaged in advanced negotiations
with three other parties with respect to: (i) the provision of
additional financing to the Company, and/or (ii) a sale of the
Advantage car rental business. These discussions resulted in two
parties, in addition to Hertz, making written offers to FSNA to provide
the Company with financing and/or purchase the Advantage business. The
board of directors of FSNA, together with members of management and
FSNA's external advisors, continue to work with these parties in
connection with the possible provision of interim financing and
recapitalization of Simply Wheelz. Prior to the actions taken by Hertz,
which are noted below, the Company was of the view that a
recapitalization of Simply Wheelz could be undertaken on a going
concern basis. Throughout this period, FSNA has been in discussions
with the Federal Trade Commission in an effort to ensure that any
proposed sale of the Advantage business would be in compliance with the
above-noted decision and order.
By letter dated November 2, 2013, Hertz gave notice to the Company that
it was terminating the Master Lease Agreements and seeking the return
of Hertz Leased Fleet. Following discussions throughout the day and
night on November 3, 2013 among FSNA, Simply Wheelz, Hertz, certain of
the financing parties and their respective advisors, Hertz agreed to an
additional one day period of forbearance on November 4, 2013. However,
Hertz and FSNA were not able to agree to terms that would have
permitted Simply Wheelz to restructure on a going concern basis and
accordingly, the decision was made to have Simply Wheelz file for U.S.
federal bankruptcy protection in order to adequately protect is rights.
In that proceeding, Simply Wheelz intends to argue that the purported
termination of the Master Subleases is invalid and it is the intention
of Simply Wheelz to continue to operate in the ordinary course pending
judicial termination of the rights of the parties by the federal
bankruptcy court in the State of Mississippi.
FSNA is a publicly traded company listed on the TSX Venture Exchange.
The Company and its subsidiaries own the following brands: Advantage
Rent A Car, U-Save Car & Truck Rental® ("U-Save"), U-Save Car Sales, Rent-A-Wreck of Canada, PractiCar, Auto Rental
Resource Center ("ARRC"), Xpress Rent A Car and Peakstone Financial Services.
The Company operates the Advantage car rental brand at 72 corporate
locations in 33 states including airport locations servicing 60 of the
top 70 airports across the United States. Advantage is the fourth
largest independent rental car company in the United States.
U-Save, together with its subsidiary ARRC, has over 900 locations
throughout the United States and is one of North America's largest
franchise car rental companies. U-Save currently services 19 airport
markets in 13 different states. Although primarily based in the United
States, U-Save has 18 international locations in Mexico, Greece, the
Middle East, Latin America, and the Caribbean.
Practicar Systems Inc. owns the rights to the Rent-A-Wreck® and the
PractiCar® trademarks for all of Canada. The Rent-A-Wreck® system
operates a network of 61 franchise locations from coast-to-coast in
Canada, providing a range of vehicle rental, leasing and sales options
to its customers. The Rent-A-Wreck® system has been in continuous
operation in Canada since 1976.
Certain statements made in this news release are forward-looking in
nature, including statements concerning: the date on which Simply
Wheelz will file for bankruptcy protection; the availability of
alternative financing sources to support a recapitalization of the
Company; losses that could be incurred in connection with the
disposition of the Hertz Leased Fleet; the ability of FSNA to find a
buyer for its Advantage business; the ability of Simply Wheelz to
restructure on a going concern basis; the ability of FSNA to ensure
that any proposed sale of Advantage is made in compliance with the
Federal Trade Commission decision; and the ability of Simply Wheelz to
operate in the ordinary course following an insolvency filing. The
words "may", "could", "should", "would", "expect", "intend",
"estimate", "anticipate", "believe", or "outlook" and similar
expressions often identify forward-looking information. By their
nature, forward-looking statements require FSNA to make assumptions and
are subject to inherent risks and uncertainties. The forward-looking
statements contained in this news release are based on certain key
expectations and assumptions made by FSNA, including with respect to
general economic, market and industry conditions and the benefits of
obtaining additional financing or selling the Advantage business.
Although FSNA believes that the expectations and assumptions on which
the forward-looking statements are based are reasonable, undue reliance
should not be placed on the forward-looking statements because FSNA can
give no assurance that they will prove to be correct. These
forward-looking statements also involve known and unknown risks,
uncertainties and other factors that may cause the actual results,
performance or achievements of FSNA to differ materially from the
anticipated results, performance or achievements or developments
expressed or implied by such forward-looking statements. Such factors
include risks discussed in the section entitled "Risk Factors" in
FSNA's management information circular dated March 28, 2013 filed with
Canadian securities regulators. If any such risks actually occur, they
could materially and adversely affect FSNA's business, financial
condition or results of operations. FSNA's forward-looking statements
are qualified in their entirety by these cautionary statements. In
addition, the forward-looking statements are made only as of the date
of this news release, and except as required by applicable securities
law, FSNA undertakes no obligation to publicly update these
forward-looking statements to reflect new information, subsequent
events or otherwise.
Neither TSX Venture Exchange nor its Regulation Services Provider (as
that term is defined in the policies of the TSX Venture Exchange)
accepts responsibility for the adequacy or accuracy of this release.
SOURCE: Franchise Services of North America Inc.
For further information:
For further information on FSNA or any of its operating subsidiaries please contact:
Thomas P. McDonnell, III
Franchise Services of North America Inc.