Apollo Among Investors Getting $375 Million on Hertz Bond Sale

(Bloomberg) -- Apollo Global Management Inc. is among investors set for a $375 million payout after Hertz Global Holdings Inc. sold a junk bond on Wednesday to repay preferred equity provided by the private equity firm as the car rental company emerged from bankruptcy earlier this year.

Hertz sold a $1.5 billion high-yield bond and will use proceeds from the deal to “repurchase all or a portion of the outstanding shares of Hertz’s Series A preferred stock” with as much as $250 million of any remaining proceeds marked for general corporate purposes, the company said in a statement Wednesday. 

Apollo and other unnamed investors provided this $1.5 billion of preferred stock as part of Hertz’s emergence from bankruptcy, according to an earlier filing. 

Now, to take that out early, Hertz is paying 125 cents on the dollar -- or $1.875 billion total, according to deal documents seen by Bloomberg. That makes for a quick reward for Apollo and others after Hertz emerged from bankruptcy in June. 

A representative for Barclays Plc, which is leading the deal, declined to comment. Representatives for Hertz and Apollo didn’t immediately respond to requests for comment. 

Repaying the preferred notes early will wipe out what was essentially high coupon debt. The preferreds started with a 9% dividend that steps down over two years to 7% for a cash payment, or 9% if paid-in-kind, but then steps back up to as much as 23% ten years out, according to a report by Bloomberg Intelligence analyst Jody Lurie.

The deal wrapped up with a final yield of 4.625% for the five-year tranche, and 5% for the eight-year portion, according to a person with knowledge of the matter who asked not to be named discussing a private transaction. That’s lower than earlier discussions in the region of 5% and mid-5%, respectively, according to different people.

The bond was initially split into portions of $750 million apiece, but the company opted to shift amounts between the tranches resulting in $500 million for the five-year debt and $1 billion for the eight-year note: The bonds cannot be bought back early by the company for two and three years, respectively.

Moody’s Investors Service and S&P Global Ratings both upgraded Hertz on news of the deal, to B2 and BB-, respectively, or five and three steps into junk. They cited strong operating performance and taking out the preferred equity. 

Estero, Florida-based Hertz was bought out of Chapter 11 bankruptcy this year by a group led by by Knighthead Capital Management and Certares Management after a dramatic brawl for control of the company. 

Hertz is in the process of cleaning up its balance sheet after relisting on Nasdaq earlier this month, where the company raised $1.3 billion. The company tapped the leveraged loan market in June for about $1.6 billion to help fund its reorganization plan. Last year, Hertz received a bankruptcy loan from funds including Apollo.

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