What Could Send Avis Budget Stock Higher

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Shares of Avis Budget (CAR) have fallen 85.7% from their April high. That peak was brief, with the stock dropping 38% and then 48% over the next two trading days. The company's total debt equals 805% of its market value, compared with 19.7% for the S&P 500. Management expects a large cash payment by year-end, however, and has said part of that money will pay off debt. So where is that cash coming from, and how sure is it?

Avis Budget Expects $650 Million From Pentwater

On the company's July 29, 2026 call, management said Pentwater agreed to pay Avis Budget $650 million in cash under a settlement related to short-swing profits. Management expects the matter to be resolved by year-end. The deal still needs final court approval.

Management has also outlined what part of the cash is for. In May, Avis Budget used new notes due in 2031 to cut its notes due in 2027 from $650 million to $350 million. The company plans to retire that remainder by year-end with part of the Pentwater proceeds.

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Is $650 Million Enough To Bring Avis Budget's Leverage Down?

Not on its own. The payment equals about 18% of Avis Budget's $3.6 billion market value, a large sum for a company of its size. Against total debt of $29.1 billion, however, it comes to about 2%. Management's leverage goal counts only net corporate debt, which is a smaller part of that total.

The business has to help. Higher earnings lower the leverage ratio management is targeting just as repaying debt does. The company's net corporate leverage ratio, measuring debt against adjusted EBITDA, stood at 7.4 times on the July call. Management expects to cut it by at least a full turn by the end of 2026, and reiterated its full-year adjusted EBITDA guide of $850 million to $1 billion.

The business is moving the right way so far. Avis Budget reported operating income of $572 million over the twelve months to June 2026, compared with an operating loss of $170 million a year earlier. The shares have not followed. Over the year to October 20, 2026, they lost 31.9% while the S&P 500 returned 17.1%.

What Could Keep Avis Budget's Leverage High?

Soft travel demand and car recalls are the risks to those earnings. On the July call, management said strategic accounts declined 10% from a year earlier, dropping more than the company had planned. In June, TSA check-ins also fell 1.3% from a year earlier.

Recalls added to the pressure. Three carmakers notified Avis Budget of new recalls in April 2026, leaving about 18,000 of its vehicles grounded in total. Management put the direct cost of recalls in 2026 at more than $50 million up to the July call, before lost profit. Even so, management expects adjusted EBITDA to grow from a year earlier in the third quarter, the period Avis Budget reports next.

The Pentwater cash is agreed upon and waits only on the court, while the earnings needed to bring leverage down must arrive despite softer travel and grounded cars. Avis Budget's third-quarter adjusted EBITDA is the number to watch in its next report, expected on or around November 3, 2026.

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