Hertz shareholders set to recover hundreds of millions of dollars after the car rental company accepted an offer from a private equity consortium to get it out of bankruptcy protection, which it has requested one year ago.
Hertz said a group comprising Knighthead Capital, Certares Opportunities and Apollo Global Management prevailed over another private equity consortium in an auction held earlier this week in a Delaware court.
Hertz filed for bankruptcy in May 2020, as the pandemic weighed on demand for business and leisure travel and falling used car prices forced it to send money to its vehicle lenders.
The winning bid values the Hertz company in total at around $ 7 billion. The Knighthead Group initially signed a deal in March to acquire Hertz which valued it at just under $ 5 billion. This launched a series of counter-offers from a rival group that included Centerbridge Partners, Warburg Pincus and Dundon Capital.
The deal will see all of Hertz’s existing creditors fully repaid, as the company raises more than $ 7 billion in new debt and new equity. In total, the revamped Hertz will have net debt of less than $ 1 billion.
Current shareholders will receive approximately $ 1.50 per share in cash, along with a small share of the reorganized Hertz capital, as well as the ability to obtain warrants or purchase shares.
One person involved in the process said that the value of this package could approach $ 8 per share, although this figure depends on the vision of the overall value of the revamped Hertz as well as contributions to the technical evaluation of the warrants.
Hertz shares were trading above $ 5 on Wednesday, implying a market cap of around $ 800 million.
The two bidding groups had initially proposed eliminating existing shareholders, a common practice in bankruptcy cases. Last June, the company attempted to sell stocks to partially fund bankruptcy, as retail traders using the Robinhood app pushed Hertz’s stock price above $ 5.
After the U.S. Securities and Exchange Commission expressed concerns over the sale of securities the company may admit to be worthless, Hertz withdrew the offer.
A group of hedge funds accumulated Hertz shares earlier this year, arguing in court that the company had positive capital value. These investors ultimately partnered with the Knighthead group to provide a portion of the equity financing offered in the winning bid.
Hertz’s meteoric rise in valuation reflects optimism about a strong recovery in the US economy and a rapid turnaround in leisure travel.
Hertz stakeholders are now ready to vote on the plan, which must also be confirmed by the bankruptcy court in a hearing on June 10. The company hopes to emerge from bankruptcy by the end of June, in time for the start of the peak tourist season.
