Hertz has selected a new group of private equity firms to emerge from bankruptcy as an expected recovery in global travel sparked a bidding war for the US car rental group that filed for bankruptcy in May 2020.
Hertz said a recent proposal led by Centerbridge Partners, Warburg Pincus and Dundon Capital Partners, in which the group would invest as much as $ 2.5 billion in the reorganized group, “ maximizes the company’s ability to take advantage of the current market conditions. continue to finance its activities and close Chapter 11 in a timely and efficient manner ”.
In early March, Hertz had selected a bid 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 Centerbridge-led group released details of its rival restructuring plan. Both bidding groups agreed to pay off covered creditors in cash, leaving unsecured bondholders nearly $ 3 billion in outstanding debt as the critical backers to win.
According to documents filed in bankruptcy court last week, the Centerbridge plan estimated that unsecured bond holders would get back 75 cents under the terms, five cents lower than what the Knighthead plan had offered.
However, Centerbridge’s offer included donating at least 48 percent of the equity in the new Hertz to unsecured Hertz bondholders, a higher percentage than Knighthead’s offer, increasing the potential upside opportunity for bondholders. According to court documents, major bondholders include Fidelity, JPMorgan and the Canadian Canso Investment Counsel.
Hertz’s unsecured bonds have moved from trading below 10 cents on the dollar around the time of the bankruptcy filing in May to now trading at around 100 cents.
Hertz said on Saturday that 85 percent of the unsecured bondholders group supported the Centerbridge plan, saying, “The level of creditor support for the Sponsorship Group’s proposal gave it a clear advantage.”
Hertz has filed for bankruptcy because falling used car prices at the depth of the pandemic last spring forced it to make cash payments to asset-backed lenders on whom it relied to purchase vehicles. However, as travel has slowly resumed and vaccine uptake has increased, the outlook for travel and hospitality businesses has increased sharply. Hertz rival Avis has seen its stock rise from about $ 10 a year ago to more than $ 70 now.
Both Centerbridge’s and Knighthead’s plans called on current shareholders to wipe out their shares. Last summer, Hertz had tried to sell new stock to fund its bankruptcy as retailers using the Robinhood trading app were betting on the company. The bankruptcy court had approved such a stock sale, but concerns from the Securities & Exchange Commission ultimately prevented Hertz from proceeding.
Representatives for Hertz, Knighthead and Centerbridge did not immediately respond to the request for comment.
Hertz’s market cap remains around $ 300 million. A group of hedge fund holders announced this week that they had formed a committee to press down on shareholder claims. According to one person familiar with their plans, the committee attempted to draft its own restructuring proposal as it believed that the financial forecasts publicly shared by Hertz implied that sufficient future value exists for current shareholders to avoid they are being withdrawn in a restructuring.
If the bankruptcy court approves the Centerbridge plan, creditors will vote to approve it. Hertz said it expects to end the bankruptcy in June.