Hertz Sees Shareholder Recovery as Bankruptcy Plan Nears Vote
(Bloomberg) -- Hertz Global Holdings Inc. said improved bankruptcy plans it’s weighing offer shareholders a chance to own a small slice of the car renter once it exits bankruptcy.
The company can now begin the process of getting final approval for a revised bankruptcy plan backed by Centerbridge Partners, a federal judge said Wednesday, even as it considers accepting a potentially superior bid from Knighthead Capital Management and Certares Management that currently lacks committed financing.
“We’re trying to get to an approach where we can have our cake and eat it too,” Hertz’s lead bankruptcy attorney Tom Lauria said in a virtual court hearing Wednesday.
U.S. Bankruptcy Judge Mary Walrath also gave Hertz permission to pay Centerbridge a so-called breakup fee if its plan isn’t chosen. There’s “value to having a committed deal” as it removes uncertainty and encourages others to improve their offers, she said.
Under new terms presented by Hertz and filed ahead of the hearing, existing shareholders would get warrants worth $90 million to $100 million as part of the Centerbridge deal, giving them a recovery of 60 to 70 cents a share. That would be a “material return to equity,” Lauria said. The warrants could be exercised at a roughly $6 billion enterprise value.
The tentative recovery would be well below the $1.74 share price Hertz closed at Wednesday. Meanwhile, Hertz lenders, including some of Wall Street’s most active distressed investors, would be paid in full after collecting fees and interest payments for financing Hertz through its reorganization.
Still, shareholders are typically wiped out in Chapter 11 proceedings, and earlier reorganization plans Hertz considered would have rendered its existing stock worthless.
Hertz can now take the Centerbridge plan to a creditor vote and put in place a $70 million breakup fee if the Knighthead bid is picked later on. The courtroom maneuvering comes after Knighthead and Certares for a second time sweetened their proposal to buy Hertz out of bankruptcy.
The improved proposals are “good news for the shareholders” and show “the process is ongoing,” Andrew Glenn, a lawyer for a group of equity holders, said at the hearing.
Hertz has said it’s seeking to exit bankruptcy by the end of June. Leaving court protection then would allow the reorganized company to take advantage of surging demand for summer travel and sell older vehicles into a hot used-car market. Competitor Avis Budget Group Inc. has seen its stock double this year.
To meet its timetable, Hertz wants creditors to vote on the Centerbridge plan by June 1. Should Knighthead’s plan replace the Centerbridge proposal, creditors would not be harmed because recoveries would be higher, Lauria told Walrath.
The Centerbridge plan is also backed by Warburg Pincus and Dundon Capital Partners. It would swap unsecured funded debt claims for 48.2% of the equity in the reorganized company and the right to purchase an additional $1.6 billion of equity.
The plan has the support of the official committee of unsecured creditors as well as nearly all the major creditors. Knighthead is backed by a group of shareholders, including Discovery Capital Management, Glenview Capital Management and Hampton Road Capital Management.
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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