Hertz Pulls In financing Needed To Reorganize

Hertz Global Holdings has obtained the debtor-in-possession financing it has been seeking.

The rental car company, which filed for Chapter 11 protection under the Federal Bankruptcy Code in May, announced Friday morning that it had secured $1.65 billion in DIP financing. 

"This new financing will provide additional financial flexibility as we continue to navigate the pandemic's effects on the travel industry and take steps to best position our business for the future," Hertz President and CEO Paul Stone said in a prepared statement. "We are pleased with the strong interest from our pre-petition first-lien lenders and appreciate their support of Hertz and our future opportunities as a rental car leader."

The amount secured is actually slightly more than the $1.5 billion that The Wall Street Journal reported in late August was being sought by the company. 

Investors immediately took notice. Within 30 minutes after the Friday morning announcement of the new financing, the beleaguered Hertz stock had risen more than 35% to near $1.37 per share. The 52-week range on the stock has seen a high of $20.85 and a low of 40 cents.

The lenders of the DIP financing will be existing Hertz lenders, described in the company's prepared statement as "pre-petition first-lien lenders." It will be a "delayed draw" term loan. Hertz said it expects to use up to $1 billion to acquire new vehicles and use $800 million for working capital.

According to a document filed with the Securities & Exchange Commision, the DIP facility will carry an interest rate of LIBOR plus 7.25%, which can be cut to LIBOR plus 6.75% after prepayment of first lien debt.

The SEC filing also contained the presentation made to potential lenders during Hertz's hunt for funding. It noted that one key market for its economics was doing better than before the pandemic: the market for used vehicles. The Manheim Used Vehicle Value Index was at its highest level since January 2019, the presentation said, and "as a result of the recovery in used car prices, [Hertz] is not operating in a favorable market environment to continue its defleeting strategy."

In the company's most recent earnings report, its net loss in the second quarter of $3.51 was significantly less than the $2.23 consensus, according to SeekingAlpha. Revenue of $832 million was down 67% from a year ago, as the pandemic destroyed much of its normal demand. 

Hertz does rent vans and pickup trucks but no trucks larger than those sizes, according to the company's website.

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