Hertz emerges from bankruptcy, slashes over $5 billion in debt

By Sarah Lizee

Olympia, Wash., June 30 – Hertz Global Holdings, Inc.’s Chapter 11 plan of reorganization went into effect on Wednesday, according to a notice filed with the U.S. Bankruptcy Court for the District of Delaware.

The plan was confirmed on June 10, as previously reported.

Hertz said in a press release that judge Mary Walrath described the outcome of the restructuring as a “fantastic result” that “surpasses any result that I've seen in any Chapter 11 case that I've faced in my 20-plus years.”

With over $5.9 billion of new equity capital being provided by Hertz's new investor group, led by Knighthead Capital Management LLC, Certares Opportunities LLC, and certain funds managed by affiliates of Apollo Capital Management, LP, Hertz has reduced its corporate debt by nearly 80% and enhanced its liquidity to fund operations and future growth.

Specifically, Hertz has eliminated $5 billion of debt, including all of Hertz Europe's corporate debt. In addition, Hertz has emerged with a new $2.8 billion exit credit facility, including an undrawn $1.3 billion revolving credit facility, and a $7 billion asset-backed vehicle financing facility, each having terms the company views as “extremely favorable.”

The $1.55 billion of seven-year term loans under the exit facility were launched at Libor plus 375 basis points to 400 bps, as reported by Prospect News. Interest on the revolver is Libor plus 350 bps, according to a plan supplement. The aggregate interest rate on the company's new ABS financing is less than 2%.

“When the economy began to show signs of recovery earlier this year, we were perfectly positioned to drive a competitive process that would maximize recoveries,” Henry Keizer, chairman of Hertz's outgoing board of directors, said in the release.

“The result, paying our nearly $19 billion of creditors in full and returning substantial value to our shareholders, is remarkable.”

Hertz said it has launched a cost reduction program that is generating significant savings, right-sized its fleet across both its U.S. and international businesses, optimized its location footprint, negotiated cost reductions and concessions at certain airport locations, and completed the sale of its Donlen fleet leasing business for $891 million in cash.

In addition, Hertz focused on meeting changing demand through its portfolio of neighborhood rental locations as a complement to its airport business.

“These efforts, combined with a sharp increase in car rentals in the U.S. and the continued strength in used car sales, are putting the company on track for strong financial results in 2021,” the company said.

Following its restructuring process, Hertz's creditors will receive payment in cash in full and existing shareholders will receive more than $1 billion of value.

Shares of Hertz’s common stock will continue to be publicly traded on the over-the-counter market, until such time as the company relists on a national securities exchange. The new ticker symbols effective July 1 will be “HTZZ” for Hertz common stock and “HTZZW” for warrants.

Plan details

The plan provides for about $705 million from the purchase of common stock in the reorganized company by the plan sponsors at a per-share price based on a discount to the equity value of the plan.

It also provides for $1.62 billion from the purchase of common stock under a fully funded rights offering, and $385 million from the purchase of convertible preferred stock by the plan sponsors.

The preferred stock will have a dividend compounded quarterly at 3% per annum for the first three years after issuance, payable in kind, will have a conversion price based on a pre-conversion equity valuation of $4.942 billion, will not be redeemable for the first three years, will be generally voted on an as-converted basis with shares of common stock, and will be mandatorily convertible after the first anniversary of issuance based on a volume weighted average trading price formula.

Under the plan, all administrative, priority and secured claims will be paid in cash in full.

Holders of claims with respect to the unsecured senior notes and the letter-of-credit facility dated Dec. 13, 2019 will receive 47.1% of the common stock in the reorganized company and subscription rights for the rights offering.

Holders of the company’s €725 million European vehicle debt will be paid in cash in full.

Each holder of a general unsecured claim will receive cash payments of the greater of its pro rata share of $550 million in the aggregate up to 100% of the allowed amount of the general unsecured claim, and 82% of the allowed amount of the claim.

The company’s existing equity will be canceled and existing equity holders will receive their pro rata share of new 10-year warrants to purchase, in the aggregate, 14% of the reorganized company’s common stock, subject to some conditions, with an exercise price to be determined based on an equity value of the company of $8 billion; cash of $175 million; and $250 million of cumulative perpetual non-convertible preferred stock with a dividend rate of 7.25%.

Hertz is an Estero, Fla.-based car rental company. It filed Chapter 11 bankruptcy on May 22, 2020. The case number is 20-11218.

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