Hertz has selected a new group of private equity firms to lead its exit from bankruptcy, as an expected upturn in global travel sparked a bidding war for the U.S. car rental group which 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 financing its business are going ahead and leaving Chapter 11 in a timely and efficient manner ”.
In early March, Hertz selected an offer from private equity firms Knighthead Capital and Certares Opportunities LLC in which the companies had 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. The two auction groups agreed to repay secured creditors in cash, leaving unsecured bondholders holding nearly $ 3 billion in current debt, with the critical constituency up for grabs.
According to documents filed in bankruptcy court last week, the Centerbridge plan estimated that unsecured bondholders would get back 75 cents on its terms, five cents less than what the Knighthead plan had offered.
However, the Centerbridge offer provided for giving at least 48% of the equity of the new Hertz to unsecured Hertz bondholders, a higher proportion than the Knighthead offer, thus increasing the potential upside opportunity for bondholders. Major bondholders include Fidelity, JPMorgan and Canso Investment Counsel of Canada, according to court documents.
Hertz unsecured bonds fell from less than 10 cents on the dollar when they filed for bankruptcy in May and are now trading at around 100 cents.
Hertz said on Saturday that 85% of the group of unsecured bondholders supported the Centerbridge plan, saying that “the level of creditors’ support for the sponsoring group’s proposal has given it a distinct advantage.
Hertz filed for bankruptcy as the plunge in used car prices deep into the pandemic last spring forced it to make cash payments to asset-backed lenders it relied on to purchase vehicles. However, as travel slowly picked up and the use of vaccines increased, the outlook for travel and hospitality companies improved sharply. Hertz rival Avis saw its shares go from around $ 10 a year ago to now over $ 70.
The plans of Centerbridge and Knighthead called for current shareholders to have their shares wiped out. Last summer, Hertz attempted to sell new shares to help fund its bankruptcy as retail traders using the Robinhood trading app bet on the company. The bankruptcy court had approved such a sale of shares, 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 the request for comment.
Hertz’s market cap remains at around $ 300 million. A group of hedge fund holders announced this week that they have formed a committee to advance shareholder demands. According to a person familiar with their plans, the committee was looking to develop its own restructuring proposal because it believed the financial forecast publicly shared by Hertz implied that there was enough future value for current shareholders to avoid being canceled in a hurry. restructuring.
If the bankruptcy court approves the Centerbridge plan, then creditors will vote to approve it. Hertz said he plans to come out of bankruptcy in June.