Hertz, In Chapter 11 Due To Pandemic, Will Emerge With New Owners, Financing

Hertz Global Holdings HTZGQ, with a bankruptcy filing last year that threatened to dump a surplus of cars and trucks onto the used vehicle market, has a plan to survive and come out of Chapter 11.

In an announcement released early Tuesday, the rental car giant said two private equity companies, Knighthead Capital Management and Certares Opportunities LLD, would be taking a significant stake in the company. Knighthead is considered a "distressed debt" investor, while Certares is a private equity firm that specializes in travel.

Under the plan disclosed by Hertz, Knighthead and Certares will spend up to $4.2 billion to purchase all the equity of Hertz. Stock in Hertz has been on a wild ride since it filed for Chapter 11 last May in the midst of the pandemic that sent demand for rental cars plummeting. The stock has been as low as 40 cents per share. It soared above $6 in June soon after the bankruptcy even though it was long assumed current shareholders would be wiped out or get pennies for their shares. On Monday, it closed at $1.78 per share. 

Barchart reported Hertz's market capitalization at the close of trading Monday as approximately $278 million.

The first part of that $4.2 billion in financing is a $2.3 billion purchase of common equity. The second part is a commitment to backstop a right offering for as much as $1.9 billion in a "reorganized Hertz." That equity offering would be made to unsecured creditors in the Hertz bankruptcy. 

The reorganization plan also calls for Hertz to receive a new $1 billion first-lien financing and a new $1.5 billion revolving credit facility. There also will be new asset-backed securitization financing to finance the company's fleet. 

Emergence from Chapter 11 is expected by summer, the company said.

"The proposed plan would provide for a new, sustainable capital structure that would substantially reduce Hertz's corporate debt and provide for a less leveraged vehicle debt structure," Hertz said in its statement. "If confirmed, the proposed plan would provide for the payment in cash in full of all of Hertz's existing first- and second-lien debt and all administrative and priority claims, including the obligations owed under Hertz's $1.65 billion debtor-in-possession facility."

Unsecured creditors would be paid back on average about 70% of their claims, the company said.

The two investors recently formed the CK Opportunities Fund, which is aimed specifically at investments in travel and leisure. Knighthead has $5.5 billion in assets under management. Certares has $4.5 billion.

Paul Stone, Hertz's president and CEO, said the reorganization plan "provides us a clear path forward to completing our financial restructuring and emerging from Chapter 11 by early to midsummer."

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