Hertz selected a new group of private equity firms to lead its exit from bankruptcy, as an expected recovery in global travel sparked a bidding war for the American car rental group that filed for bankruptcy in May 2020.
Hertz said that a recent proposal led by Centerbridge Partners, Warburg Pincus and Dundon Capital Partners, in which the group would invest up to $ 2.5 billion in the reorganized group, “maximizes the company’s opportunity to capitalize on current market conditions for the financing your business moving forward and out of Chapter 11 in a timely and efficient manner. ”
In early March, Hertz selected an offering from private equity firms Knighthead Capital and Certares Opportunities LLC in which the firms agreed to lead a similar multi-billion dollar investment in the Florida-based company.
Last week, the group led by Centerbridge released details of its rival restructuring plan. Both bidding groups agreed to pay secured creditors in cash, leaving unsecured bondholders with about $ 3 billion in current debt, while the critical constituency still needed to win.
According to documents filed with the bankruptcy court last week, Centerbridge’s plan estimated that unsecured bondholders would recover 75 cents according to its terms, five cents less than the Knighthead plan had offered.
However, Centerbridge’s offer included giving at least 48 percent of the equity in the new Hertz to holders of Hertz unsecured bonds, a larger proportion than Knighthead’s offering, increasing the potential upside opportunity for bond holders. According to court documents, major bondholders include Fidelity, JPMorgan and the Canso Canada Investment Council.
Hertz’s unsecured bonds recovered from trading at less than 10 cents on the dollar at the time of the May bankruptcy filing and are now trading at around 100 cents.
Hertz said on Saturday that 85 percent of the group of unsecured bondholders supported the Centerbridge plan, saying: “The level of creditor support for the Sponsorship Group’s proposal gave it a clear advantage.”
Hertz filed for bankruptcy because the drop in used car prices at the height of the pandemic last spring forced it to make cash payments to asset-backed creditors with whom it trusted to buy vehicles. However, as travel resumed slowly and vaccine acceptance increased, the prospects for travel and hospitality companies increased dramatically. Hertz’s rival Avis saw its shares rise from about $ 10 a year ago to now more than $ 70.
Centerbridge and Knighthead’s plans required current shareholders to eliminate their shares. Last summer, Hertz tried to sell new shares to help finance its bankruptcy, as retail traders using the Robinhood trading app were betting on the company. The bankruptcy court approved the sale of shares, but the concerns of the Securities & Exchange Commission eventually dissuaded Hertz from moving forward.
Knighthead declined to comment. Hertz and Centerbridge representatives did not immediately respond to a request for comment.
Hertz’s market capitalization remains around $ 300 million. A group of hedge fund holders announced this week that it had formed a committee to put pressure on shareholders’ claims. According to a person familiar with his plans, the committee was trying to put together its own restructuring proposal, as it believed that the financial forecasts publicly released by Hertz indicated that there is sufficient future value for current shareholders to avoid being zeroed in on a restructuring.
If the bankruptcy court approves Centerbridge’s plan, creditors will vote to approve it. Hertz said it expects to exit bankruptcy in June.