Hertz, in Chapter 11 due to pandemic, will emerge with new owners and financing

Hertz Global Holdings (OTC:HTZGQ), with a bankruptcy filing last year that threatened to dump a glut of cars and trucks on the used-vehicle market, has a plan to survive and get out of Chapter 11.

In an announcement released early Tuesday, the car rental giant said two private equity firms, Knighthead Capital Management and Certares Opportunities LLD, would take a significant stake in the company. Knighthead is considered a “struggled” investor, while Certares is a private equity firm specializing in travel.

According to the plan disclosed by Hertz, Knighthead and Certares will spend up to $4.2 billion to buy all of Hertz’s shares. Stock in Hertz has been on a frantic run since filing for Chapter 11 last May amid the pandemic that has slumped demand for rental cars. The stock was as low as 40 cents per share. It soared above $6 in June shortly after the bankruptcy, although it was long assumed that current shareholders would be wiped out or receive pennies for their shares. On Monday, it closed at $1.78 per share.

Barchart reported Hertz’s market cap as of Monday’s close of trading at around $278 million.

The first part of this $4.2 billion financing is a $2.3 billion common stock purchase. The second part is a pledge to support a rights offering of up to $1.9 billion in a “re-engineered Hertz.” This stock offering would be made to unsecured creditors in the Hertz bankruptcy.

The reorganization plan also calls for Hertz to receive $1 billion in new senior financing and a new $1.5 billion revolving credit facility. There will also be new asset-backed securitization financing to fund the company’s fleet.

Chapter 11 is expected to emerge by summer, the company said.

“The proposed plan would provide for a new sustainable capital structure that would significantly reduce Hertz’s corporate debt and provide a less leveraged vehicle debt structure,” Hertz said in its statement. “If confirmed, the proposed plan would provide for the full cash payment of all of Hertz’s existing senior and junior debt and all senior and administrative claims, including obligations due under the facility. debtor in possession of $1.65 billion from Hertz.”

Unsecured creditors would be repaid on average about 70% of their claims, the company said.

The two investors recently established the CK Opportunities Fund, which specifically targets travel and leisure investments. Knighthead has $5.5 billion in assets under management. Certares has $4.5 billion.

Paul Stone, president and CEO of Hertz, said the reorganization plan “provides us with a clear path to complete our financial restructuring and exit Chapter 11 by early to mid-summer.”

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