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Herc Treasury faced the challenges of disentangling from the former parent, creating new partnerships and overhauling the banking platform to

create an end-to-end liquidity management process. Herc had inherited legacy retirement benefit plans and needed to establish a stand-alone

investment management platform. In addition, the new enterprise – levered with over US$2bn of first and second lien secured debt with a bank

group comprising over 20 partners – faced challenges to manage balance sheet risks, ensure compliance with these complex debt arrangements

and recalibrate overall banking relationships.

Mustally Hussain, Vice President and Treasurer, says, “As the treasury department for a newly stand-alone public company, we were faced with

the challenge of creating new analytical infrastructure, processes and operating models. Strategically, the task was to understand the business

needs from a capital and liquidity management perspective and develop a financial strategy to meet these needs.”

The solution

A strategic plan was developed to define the mandate/structure and solve challenges of the new treasury department. The department structure

was designed to cover a centralised treasury organisation with three domains:

Banking and treasury operations.

Corporate finance and strategic planning.

Capital markets and exposure risk management.

Mr Hussain explains, “We on-boarded core and competent talents in the above domains within a short period of time. An implementation plan was

put together with the help of a consulting partner with milestones tracked on a weekly basis. The combination of strategic and tactical planning

enabled Herc Treasury to terminate the services under the Transition Services Agreement (TSA) with the former parent well in advance of the initial

schedule, reducing significant TSA fees.” As a result, Herc Treasury was one of the first departments to operate autonomously from the former parent.

Banking and treasury operations had various working parts that needed to be pieced together to create an end-to-end liquidity management

process. Herc Treasury worked with banking partners not only to optimise cash applications and lockbox processing but also to redesign a new

customised depository process, enabling remote capture technology to make store deposits. The team also worked with technology partners to

enhance payment processing by eliminating over-funding. Despite limited historical data, a rolling 13-week cash forecast model with a target

cash balance was created by partnering across the enterprise to manage day-to-day cash operations. Utilising this tool, Herc Treasury reduced

the daily target balance by over 30% and optimised the cash level, realising significant annual interest expense savings.

Mr Hussain comments, “We brought in specialised treasury staff with fresh perspectives to design a banking platform to handle the demands of

the cash-driven business model of Herc. These best in class practices are particularly epitomised by automating and streamlining existing work

streams across daily cash positioning, user entitlement, banking administration and control monitoring.”

Herc Treasury introduced new elements of corporate planning, forecasting and risk analytics. As a result, the team overhauled the investment

aspects of the benefits plans and provided a more prudent risk profile that will provide benefits in both the short- and long-term by:

1. Implementing a new strategic asset allocation to optimise the risk/return trade-off and move the portfolio onto the efficient frontier.

2. Setting new investment policies for the various plans.

3. Administering the plan with appropriate committee governance.

Herc Treasury assessed the enterprise/entity level capital structure, funding needs and related balance sheet risks through a detailed review and

understanding of the business. Based on various analyses, the team executed bond redemptions (10% of the outstanding secured notes) and

locked in interest rate swaps with hedge accounting treatment to create value. The team also developed process and infrastructure to monitor

covenants based on company events that could qualitatively or quantitatively trigger provisions in the debt agreements. The automation has

significantly improved the auditability and accuracy of compliance reporting.

Eric Kim, Senior Director of Corporate Finance, comments, “We also realised that it was critical for the department to develop internal compliance

processes and models to bridge the gap between the debt agreements and our accounting systems.”


Treasury Today’s Top Treasury Team

Winning an Adam Smith Award is an excellent validation of our effort to

build a great team and deliver value to the broader enterprise as a

strategic business partner.

Mustally Hussain, Vice President and Treasurer, Herc Rentals Inc.

treasurytoday Adam Smith Awards © August 2017 | 5