Hertz puts new private equity group in driver’s seat

Hertz puts new private equity group in driver’s seat

Hertz has selected a new group of private equity firms to lead its exit from bankruptcy, as an expected recovery in global travel set off a bidding war for the American car rental group that filed for bankruptcy in May of 2020.

Hertz said that a recent proposal led by Centerbridge Partners, Warburg Pincus, and Dundon Capital Partners in which the group would invest as much as $2.5bn in the reorganised group, “maximises the Company’s opportunity to capitalise on the current market conditions for the financing of its business going forward and to exit Chapter 11 in a timely and efficient fashion”.

In early March, Hertz had selected an offer from private equity firms Knighthead Capital and Certares Opportunities LLC in which the firms had agreed to lead a similar multibillion-dollar investment in the Florida-based company.

Just last week the Centerbridge-led group released the details of its rival restructuring plan. Both bidding groups agreed to pay off secured creditors in cash leaving unsecured bondholders holding nearly $3bn in current debt as the critical constituency left to win over. 

According to documents filed with the bankruptcy court last week, the Centerbridge plan estimated that unsecured bondholders would recover 75 cents under its terms, five cent lower than what the Knighthead plan had offered.

However, Centerbridge’s offer included giving at least 48 per cent of the equity in the new Hertz to unsecured Hertz bondholders, a higher proportion than the Knighthead offer, increasing the potential upside opportunity for bondholders. According to court documents, large bondholders include Fidelity, JPMorgan, and Canada’s Canso Investment Counsel. 

Hertz unsecured bonds have rallied from trading at under 10 cents on the dollar around the time of the May bankruptcy filing to now trading at around 100 cents.

Hertz said on Saturday that 85 per cent of the unsecured bondholder group supported the Centerbridge plan, saying, “the level of creditor support for the Sponsorship Group’s proposal gave it the clear advantage.”

Hertz filed for bankruptcy as plunging used car prices at the depth of the pandemic last spring forced it to make cash payments to asset-backed lenders whom it relied upon to purchase vehicles. However, as travel slowly resumed and vaccine uptake has increased, the prospects of travel and hospitality companies have rallied sharply. Hertz rival Avis has seen it shares rally from roughly $10 a year ago to now over $70.

Both the Centerbridge and Knighthead plans called for current equity holders to have their shares wiped out. Last summer, Hertz had attempted to sell new shares to help fund its bankruptcy as retail traders using the Robinhood trading app were betting on the company. The bankruptcy court had approved such a share sale, but concerns from the Securities & Exchange Commission ultimately dissuaded Hertz from moving forward.

Knighthead declined to comment. Representatives for Hertz and Centerbridge did not immediately respond to request for comment.

Hertz’s market capitalisation remains at around $300m. A group of hedge fund holders this week announced that they had formed a committee to press the claims of shareholders. According to one person familiar with their plans, the committee was seeking to put together its own restructuring proposal as it believed the financial forecasts publicly shared by Hertz implied there exists enough future value for current shareholders to avoid being zeroed out in a restructuring.

If the bankruptcy court approves the Centerbridge plan, creditors will then vote to approve it. Hertz said that it expects to exit bankruptcy in June. 

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