Hertz to Sell to Knighthead, Certares to Exit Bankruptcy

Hertz Global Holdings Inc. received a bid from Knighthead Capital Management and Certares Management to purchase the rental-car company out of bankruptcy for as much as $4.2 billion, according to court documents.

Under the plan, Knighthead and Certares would take control of Hertz when it emerges from its Chapter 11 reorganization, with the final value of the deal dependent on how much existing lenders participate in the financing. The bid is backed by a travel industry-focused investment fund that Knighthead and Certares created last year to take advantage of an expected rebound in companies that were disrupted by the Covid-19 pandemic.

It’s the largest deal yet for the fund, which is expected to reach as much as $2 billion in size, according to people with knowledge of the plans. It has also invested in Brazilian airline Azul SA and the bankrupt Latam Airlines Group SA.

Shareholder Wipeout

Under the proposal, shareholders would be wiped out, which is typical in big corporate bankruptcies. Creditors will get a chance to vote on the proposal before it goes to U.S. Bankruptcy Judge Mary Walrath for final approval, a process that may take several weeks, or longer should opposition to the proposal appear.

Hertz shares plunged as much as 29% Tuesday morning in New York to as low as $1.16.

The company started negotiating with creditors and potential buyers in November, according to court documents. After talking with three bidders, Hertz settled on Knighthead and Certares, whose proposal values the company at about $4.85 billion.

After decades of mismanagement, Hertz was unable to weather the blows from the pandemic that peers Enterprise Holdings Inc. and Avis Budget Group Inc. also experienced. One former top executive summed up the car rental company’s plight as a slow-moving train wreck.

Knighthead and Certares’s position would include a direct investment, a rights offering participation and buying Hertz’s existing unsecured debt. The investors would own at last 51% of the common stock under the proposal, according to court documents. A hearing to approve the terms of the plan is scheduled for April 16.

Proposed Plan

The plan fully repays Hertz’s first-lien and second-lien creditors and gives unsecured bondholders the option to take a cash payout of 70% of their investments’ face value or roll their debt into new financing, according to a Hertz statement. The rental-car company would have $1 billion of new first-lien financing, a $1.5 billion revolving credit facility and a new asset-backed securitization facility under the deal.

Hertz filed for bankruptcy in May when the near-total shutdown of the global travel industry sent its rental revenues plunging. It made a short-lived effort to raise funds after its bankruptcy filing by selling stock but abandoned that offering after the U.S. Securities and Exchange Commission questioned the plan.

On Feb. 26, the company reported revenue for the fourth quarter of $1.2 billion, down 48% from the previous year’s $2.33 billion.

The case is Hertz Corp. 20-11218, U.S. Bankruptcy Court, District of Delaware (Wilmington). To view the docket on Bloomberg Law, click here.

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