Why does Dollar Rent A Car use interest rate caps and swaps?
Dollar_Rent_A_Car Franchise · 2025 FDDAnswer from 2025 FDD Document
| | | | | | — | | — | | 61 | | — | | | | | Total | $ | 3 | $ | 15 | $ | 67 | $ | 2 | | | |
(1) Asset derivatives are recorded in prepaid expenses and other assets and liability derivatives are recorded in accrued liabilities in the accompanying consolidated balance sheets.
(2) The Exchange Feature was bifurcated as a derivative upon issuance of the Exchangeable Notes in June 2024, as disclosed in Note 7, "Debt," and is recorded in non-vehicle debt in the accompanying consolidated balance sheet as of December 31, 2024.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the gains or (losses) on financial instruments for the period indicated:
Location of Gain (Loss) Recognized on Derivatives Amount of Gain (Loss) Recognized in Income on Derivatives Years Ended December 31, (In millions) 2024 2023 2022 Interest rate instruments Vehicle interest expense, net $ (5) $ (6) $ 127 Foreign currency forward Selling, general and administrative (26) 8 (2) contracts expense(1) Exchange Feature related to Non-vehicle interest expense, net 7 — — Exchangeable Notes(2) Total $ (24) $ 2 $ 125 (1) In 2022, all gains (losses) on foreign currency forward contracts were recorded
Source: Item 23 — RECEIPTS (FDD pages 102–301)
What This Means (2025 FDD)
According to the 2025 Dollar Rent A Car FDD, the company uses interest rate instruments, including caps and swaps, as part of its financial strategy. The gains or losses on these financial instruments are recorded in the company's financial statements. Specifically, gains or losses on interest rate instruments are recognized in vehicle interest expense, net.
For example, the FDD indicates that for the year ended December 31, 2024, Dollar Rent A Car experienced a loss of $5 million on interest rate instruments, while in 2023, the loss was $6 million. However, in 2022, the company had a significant gain of $127 million on these instruments. These figures demonstrate the fluctuating nature of gains and losses associated with interest rate instruments.
In the first quarter of 2023, Dollar Rent A Car sold some of its interest rate caps, resulting in a net gain of $10 million. This gain was based on recognizing a $98 million realized gain on the unwind, of which $88 million was previously unrealized. This shows how Dollar Rent A Car actively manages its interest rate exposure through strategies like selling interest rate caps.
The FDD also mentions that Dollar Rent A Car's foreign currency forward contracts and certain interest rate instruments are subject to enforceable master netting agreements with their counterparties. However, the company does not offset these derivative assets and liabilities in its consolidated balance sheets, and the potential effect of using master netting arrangements is not considered material. This indicates that while these agreements are in place, they do not significantly impact the company's overall financial position.