As
previously disclosed, on the Petition Date, the Debtors filed voluntary petitions for relief under Chapter 11 of the United States Code
in the Bankruptcy Court, thereby commencing the Chapter 11 Cases for the Debtors. The cases are being jointly administered under the caption In
re The Hertz Corporation, et al., Case No. 20-11218 MFW.
The Disclosure Statement
describes, among other things, the events leading to the Chapter 11 Cases; the Debtors’ contemplated financial restructuring (the
“Restructuring”); the Proposed Plan; certain events that have occurred or are anticipated to occur during the Chapter 11 Cases,
including the solicitation of votes to approve the Proposed Plan from certain of the Debtors’ stakeholders; certain risk factors
related to the Proposed Plan; certain tax considerations; and certain other aspects of the Restructuring. The Disclosure Statement and
solicitation procedures with respect to the Proposed Plan were approved by the Bankruptcy Court at a hearing held on April 21, 2021 and
an order to that effect was entered on April 22, 2021. The Proposed Plan is now subject to a vote by the Debtors’ stakeholders and
a subsequent confirmation hearing of the Bankruptcy Court, currently scheduled for June 10, 2021. In addition to approval by the Bankruptcy
Court, consummation of the Proposed Plan remains subject to the satisfaction of other conditions as set forth therein.
Under the Proposed
Plan, Centerbridge Partners, L.P., Warburg Pincus LLC, and Dundon Capital Partners, LLC (collectively, the “PE
Sponsors”) and certain holders of over 85% of the Debtors’ unsecured notes (the “Supporting Noteholders,”
and together with the PE Sponsors the “Plan Sponsors”) have committed to provide equity capital to fund the
Debtors’ exit from Chapter 11 as reflected in definitive executed documents, including (1) an Equity Purchase and Commitment
Agreement (the “EPCA”), (2) a Plan Support Agreement and (3) a Bridge Financing Commitment for Hertz International Ltd.
(collectively, along with the Proposed Plan and the Disclosure Statement, the “Transaction Documents”). Under the
Proposed Plan, the Debtors anticipate exiting from chapter 11 with approximately $2.2 billion of global liquidity (inclusive of
capacity under the anticipated exit revolving credit facility) and only $1.3 billion in corporate debt (exclusive of ABS
facilities and the exit revolving credit facility).
The Proposed Plan is
supported by the Supporting Noteholders, which comprise the vast majority of creditors in the largest class of claims that are voting
on the Proposed Plan, and the Official Committee of Unsecured Creditors appointed in the Chapter 11 Cases.
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As set forth in the Transaction Documents, the Proposed Plan
will raise approximately $3.873 billion in cash proceeds, comprised of:
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$565 million from the purchase of common stock in the reorganized Company by the Plan Sponsors at a per share price based on a 6.7% discount to the Proposed Plan equity value of approximately $4.525 billion (“Proposed Plan Equity Value”);
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$1.623 billion from the purchase of common stock (at the same purchase price for the common stock to be purchased by the Plan Sponsors, i.e. a 6.7% discount to Proposed Plan Equity Value) pursuant to the rights offering contemplated by the Plan, which the Plan Sponsors have committed to ensure is fully funded pursuant to the terms of the EPCA;
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$385 million from the purchase of convertible preferred stock by Plan Sponsors Centerbridge Partners, L.P. and Warburg Pincus LLC
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the preferred stock compounds quarterly at 4% per annum for
the first three years after issuance, payable in kind, and without interest thereafter, has a conversion price based on a pre-conversion
equity valuation of $4.826 billion, cannot be redeemed for the first three years (except in connection with certain change of control
transactions), generally votes on an as-converted basis with shares of common stock, and is mandatorily convertible after the first anniversary
of issuance based on a volume weighted average trading price formula; and
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$1.3 billion in proceeds from the anticipated new exit term
loan facility.
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Such cash proceeds will be used, in part, to provide the following
distributions to the Company’s stakeholders pursuant to the terms of the Proposed Plan:
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administrative, priority and secured claims will be paid in
cash in full;
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the holders of the Company's €725 million European
Vehicle Notes will be paid in cash in full;
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the holders of claims with respect to the unsecured Senior
Notes and holders of claims with respect to the letter of credit facility provided pursuant to the ALOC Credit Agreement, dated as of
December 13, 2019, by and among Hertz, the lenders party thereto, and Goldman Sachs Mortgage Company, as administrative agent and issuing
lender, (together with the Senior Notes, the “Unsecured Funded Debt”) will receive approximately 48.2% of the common stock
in the reorganized Company and subscription rights to purchase an additional $1.623 billion of common stock in the reorganized entity;
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the holders of general unsecured claims will receive cash payments
of not more than $550 million in the aggregate, which the Company estimates will provide a recovery of approximately 100 percent
on account of the anticipated amount of allowed general unsecured claims; and
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the
Company’s existing equity will be cancelled and existing equity holders will receive their pro rata share of new six-year warrants
to purchase, in the aggregate, 4% of the reorganized Company’s common stock, subject to certain conditions, with an exercise price
to be determined based on an equity value of the Company of $6.1 billion (the “Proposed Warrants”).
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The shares of common
stock to be issued pursuant to the Proposed Plan described above, will be subject to dilution from, among other things, (1) the issuance
of shares upon the conversion of the preferred stock, (2) the issuance of shares pursuant to the Proposed Warrants, and (3) shares that
may be issued pursuant to a management incentive plan for at least 5% of the common stock of the reorganized Company.
In light of
continuing interest from an alternative potential plan sponsorship group, consisting of Certares Opportunities LLC
(“Certares”), Knighthead Capital Management, LLC (“Knighthead”), Apollo Capital Management, LP
(“Apollo”), and certain of each of their affiliates (together with Certares, Knighthead, and Apollo, the
“Alternative Sponsor Group”), on April 28, 2021 the Bankruptcy Court entered an order (the “Bid Procedures
Order”) that, among other things, establishes bidding and auction procedures relating to the submission of alternative plan
proposals.
On May 2, 2021, the Alternative
Sponsor Group submitted an alternative plan proposal to the Debtors (the “Alternative Plan Proposal”) along with proposed
alternative transaction documents (the “Alternative Transaction Documents”).
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As set forth in the Alternative Transaction Documents, the
Alternative Plan will raise approximately $7.089 billion in cash proceeds, comprised of:
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$2.929 billion from the purchase of common stock in the reorganized
Company by the Alternative Sponsor Group and other third parties;
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$1.500 billion from the purchase of preferred stock arranged
by Apollo;
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$1.360 billion from the purchase of common stock pursuant to
a rights offering which the Alternative Sponsor Group and certain third parties have committed to ensure is fully funded pursuant to
the Transaction Documents; and
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$1.300 billion in proceeds from the anticipated exit term loan
facility.
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Such cash proceeds will be used, in part, to provide the following
distributions to the Company’s stakeholders:
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administrative, priority and secured claims will be paid in
cash in full;
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the holders of the Company's €725 million European
Vehicle Notes will be paid in cash in full;
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holders of Unsecured Funded Debt Claims will be paid in cash
in full and eligible holders of such claims will have the right to purchase their pro rata share of the unsubscribed shares in the rights
offering with an exercise price that is the same as the purchase price for the common stock to be purchased by the Alternative Sponsor
Group;
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the holders of general unsecured claims will receive cash payments
of not more than $550 million in the aggregate, which the Company estimates will provide a recovery of approximately 100 percent
on account of the anticipated amount of allowed general unsecured claims; and
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the Company’s existing equity will be cancelled and existing
equity holders will receive cash in an amount equal to $0.50 per share of their existing interest and their pro rata share of either
(1) 10-year warrants for an aggregate of 10% of the reorganized Company, subject to certain conditions, with an exercise price to be
determined based on an equity value of the Company of $6.5 billion (the “Alternative Warrants”), or (2) for eligible
existing equity holders, the right to purchase shares of common stock in the rights offering with an exercise price that is the same
as the purchase price for the common stock to be purchased by the Alternative Sponsor Group.
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The subscription rights
proposed to be provided pursuant to the Alternative Plan Proposal would offer eligible existing equity holders and, to the extent there
are unsubscribed shares after the exercise of such rights by eligible existing equity holders, unsecured funded debt holders the right
to purchase common stock at a per share price based on an Alternative Plan Proposal equity value of approximately $4.425 billion
(“Alternative Plan Equity Value”). The Alternative Sponsor Groups’ commitment to directly purchase common stock of the
reorganized Company is at the same per share price offered pursuant to the rights offering (i.e., at the Alternative Plan Equity
Value), but the parties providing a backstop to the rights offering are entitled to a 10% backstop premium paid in common stock.
The shares of common
stock to be issued pursuant to the Alternative Plan Proposal described above will be subject to dilution from, among other things, (1)
the issuance of shares pursuant to the Alternative Warrants and (2) shares that may be issued pursuant to a management incentive plan
for at least 5% of the common stock of the reorganized Company.
The preferred stock to
be issued and purchased pursuant to the Alternative Plan Proposal would be issued at a 2% discount to stated value. Dividends on the preferred
stock would be paid in cash as and if declared by the board of directors of the reorganized Company. Any portion of the dividends not
paid in cash would automatically accrete to and increase the stated value of the preferred stock. Any failure to pay dividends in cash
after the 42 month anniversary of issuance would be a “non-compliance event” subject to the provisions described below. The
applicable dividend rate would be as follows:
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prior to the second anniversary of issuance, 9% per annum;
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after the second anniversary of issuance and on or prior to
the third anniversary of issuance, for any portion paid in cash, 7% per annum and for any portion paid in kind, 9% per annum;
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after the third anniversary of issuance and on or prior to
the 42 month anniversary of issuance, for any portion paid in cash, 8% per annum and for any portion paid in kind, 10% per annum;
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after the 42 month anniversary of issuance and on or prior
to the four year anniversary of issuance, 9% per annum;
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after the fourth anniversary of issuance and on or prior to
the 54 month anniversary of issuance, for 10% per annum;
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after the 54 month anniversary of issuance and on or prior
to the five year anniversary of issuance, 11% per annum; and
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after the fifth anniversary of issuance an amount equal to
the sum of (a) 13% per annum and (b) the product of (x) 2% per annum multiplied by (y) the number of whole years elapsed since the
fifth anniversary of issuance.
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The preferred stock would
be redeemable by the reorganized Company at any time at the greater of 100% of its accrued value and an amount necessary to generate a
1.3 times multiple on invested capital.
The preferred stock would
include certain protective covenants related to, among other things, the reorganized Company’s capital structure and financial covenants
that are consistent with the financial covenants included in the proposed exit term loan facility. If the reorganized Company fails to
comply with such protective provisions, a “non-compliance event” would occur, which would trigger certain consequences set
forth more fully in the terms of the preferred stock. This description of the terms of the preferred stock is not complete and is qualified
in its entirety by reference to the term sheet for the preferred stock attached to this Form 8-K as Exhibit 99.1.
At a meeting of the
board held on May 4, 2021, the Company determined that the Alternative Plan Proposal constitutes a “Superior Proposal” as
that term is defined under the Debtors’ Equity Purchase and Commitment Agreement with the Plan Sponsors dated as of April 3, 2021
and approved by the Bankruptcy Court on April 22, 2021. Pursuant to the Bid Procedures Order, the Plan Sponsors have indicated that they intend to counter the Alternative
Plan Proposal. An auction (the “Auction”) will be conducted on May 10, 2021. A hearing before the Bankruptcy Court to approve
the results of the Auction along with supplemental solicitation materials, if any, will be conducted on May 14, 2021.
This Current Report on
Form 8-K is not a solicitation of votes to accept or reject the Proposed Plan or the Alternative Plan Proposal. Information contained
in the Proposed Plan, the Disclosure Statement, or described in this Current Report on Form 8-K is subject to change, whether as a result
of additional amendments or supplements to the Proposed Plan or Disclosure Statement or otherwise. The documents and other information
available via website or elsewhere are not part of this Current Report on Form 8-K and shall not be deemed incorporated herein.
Cautionary
Statement Concerning Forward-Looking Statements
This Current Report contains
“forward-looking statements” within the meaning of federal securities laws. Words such as “expect” and “intend”
and similar expressions identify forward-looking statements, which include but are not limited to statements related to our liquidity
and potential financing sources; the bankruptcy process; our ability to obtain approval from the Bankruptcy Court with respect to motions
or other requests made to the Bankruptcy Court throughout the course of the Chapter 11 Cases; the effects of Chapter 11 on the interests
of various constituents; and the ability to confirm and consummate a plan of reorganization. We caution you that these statements are
not guarantees of future performance and are subject to numerous evolving risks and uncertainties that we may not be able to accurately
predict or assess, including those in our risk factors that we identify in our most recent annual report on Form 10-K for the year ended
December 31, 2020, as filed with the Securities and Exchange Commission on February 26, 2021, and any updates thereto in the Company’s
quarterly reports on Form 10-Q and current reports on Form 8-K. We caution you not to place undue reliance on our forward-looking statements,
which speak only as of their date, and we undertake no obligation to update this information.
Item 9.01 Exhibits.
(d) Exhibits
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Exhibit
Number
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Title
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99.1
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Preferred Stock Term Sheet
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101.1
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Pursuant to Rule 406 of Regulation S-T, the cover page to this Current Report on Form 8-K is formatted in Inline XBRL
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104.1
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Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101.1)
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