A bidding war for the bankrupt car rental group Hertz will come to an end when rival private equity bidders face off in an auction to be held in federal bankruptcy court on Monday.
A consortium led by Centerbridge Partners has indicated it will counter-submit to a recent proposal submitted by another group led by Knighthead Capital that pegged Hertz’s enterprise value at $ 6.2 billion.
This figure would allow existing Hertz shareholders to enjoy a surprisingly generous payback valued at over $ 2 per share. The battle for the car rental company comes as Trip and the leisure industries are recovering quickly as vaccination rates skyrocket and the US economy accelerates.
The punches traded between the two auction groups began in March when Hertz accepted an offer from Knighthead and its partners Certares Opportunities that valued the company at just $ 4.8 billion. This offer was then overtaken in April by the Centerbridge group, which includes Warburg Pincus and Dundon Capital Partners.
Hertz’s board of directors on Wednesday determined that Knighthead’s offer received last week constituted a “superior proposition.” Bidding procedures established by the Delaware bankruptcy court allowed Centerbridge to trigger Monday’s auction.
Both groups’ early offers provided for junior bondholders to receive equity in the new company while existing shareholders would be eliminated.
A hedge fund group that racked up Hertz shares argued that the valuation of the company was large enough to support at least a modest recovery for current shareholders. This group has since joined forces with Knighthead / Certares with Apollo Global Management to lead a $ 7 billion package in new debt and equity to reorganize Hertz.
Their proposal provides a cash recovery of 50 cents to current Hertz shareholders and allows them to buy shares in New Hertz, either through a rights offering or through warrants. The group valued the package at around $ 2.25 per share, according to a person directly familiar with the matter.
Hertz shares rose to over five dollars last summer thanks to the strength of retail traders using the Robinhood app. Pundits, however, scoffed because it seemed that since subordinate creditors would receive less than 100 cents on the dollar during the restructuring, lower-ranked shareholders would not be entitled to anything.
The Knighthead plan raises enough liquidity to pay off all creditors in full and make the cash payment to shareholders. Hertz shares rebounded to $ 3.48 from a low of 66 cents this year, implying a current market cap above $ 500 million.
The bankruptcy court must approve the successful bidder, which will be followed by a vote on the plan by Hertz’s claimants. The company is rushing to close a deal and exit the Chapter 11 process by early July, the start of the company’s busiest season.
Favorable conditions in the capital markets made it possible for Hertz to struggle.
“I don’t remember a better financing deal,” William Derrough, Hertz’s investment banker at Moelis & Co, said during court testimony in April.