By Becky Yerak and Alexander Gladstone
Hertz Global Holdings Inc. agreed to provide some value to
equity holders when it leaves chapter 11, vindicating the
individual traders who have insisted the company is worth something
despite its bankruptcy filing.
Hertz proposed in a chapter 11 exit plan on Wednesday that
current stockholders receive warrants to purchase up to 4% of the
restructured business, the first time the company has said it is
worth enough to distribute some value to its owners.
The shareholder distribution would amount to a recovery of 60 to
70 cents per share, a "material return to equity," Hertz lawyer
Thomas Lauria said during a court hearing Wednesday.
If approved by the U.S. Bankruptcy Court in Wilmington, Del.,
that outcome would make Hertz a relative rarity in corporate
bankruptcies, in which equity ranks behind debt and most often is
wiped out. Hertz shares closed at $1.74 on Wednesday, down 8.4% on
the day but up 36% year to date.
The proposed distribution to equity is part of a restructuring
proposal put forth by Dundon Capital Partners LLC, Centerbridge
Partners LP and Warburg Pincus LLC, selected by Hertz earlier this
month after a competitive process to finance the company's exit
from chapter 11.
Hertz has the exclusive right to propose restructuring terms,
meaning that any bankruptcy plan needs the company's support to
advance to creditors for a vote. Hertz is racing to exit from
bankruptcy as soon as it can, concerned about the risk that
favorable market conditions could turn against it.
Companies generally enter bankruptcy when they can't cover their
debts, much less pay anything on account of their equity. When
shareholders do receive anything, it is often because a short-term
stress fades, an industry recovers more quickly than expected, or
market conditions change. Past examples include onetime mall giant
General Growth Properties Inc. in 2010 and former American Airlines
parent AMR Corp. in 2013.
Risk-hungry individual investors were convinced Hertz had value
after it filed for bankruptcy last year, piling into the company
and sending its stock up nearly 900% before declining again, a
speculative frenzy that presaged the GameStop Corp. phenomenon.
Even after Hertz shares fell back to earth last year and were
delisted from the New York Stock Exchange, some enthusiasts
continued to tout the company in online forums, confident in a
Now it appears they were on to something all along. Enthusiasm
for Hertz has broadened in recent weeks to larger investors amid a
rebound in U.S. business and leisure travel that has been fueled by
Covid-19 vaccination campaigns. Airlines are adding flights within
the U.S. and nearby destinations, optimistic about a summer
vacation boom and encouraged by a rise in bookings.
As recently as last week, Hertz had insisted its equity was
worthless because the company wasn't worth enough to cover its debt
and had no surplus of value left over for stockholders. Hertz
entered chapter 11 with roughly $19 billion owed to banks and
bondholders, one of the largest companies driven to default by the
But a bidding war between rival consortia of investors in recent
weeks drove up Hertz's value enough to put its equity in the money.
Competition for control of Hertz continues as it explores an
alternative bid, submitted Tuesday, from an investment group led by
Knighthead Capital Management LLC and Certares Management LLC that
also includes an equity payout.
The competing plan includes a 50-cent payout per share in cash
for stockholders and gives them the chance to participate in a $1
billion rights offering, Andrew Glenn, a lawyer for hedge-fund
shareholders backing Knighthead and Certares, said at the court
hearing. He argued that his group's plan is a better deal because
it provides the payout in cash to stockholders, rather than from
A Hertz board committee determined that the restructuring terms
put forth by Knighthead and Certares were incomplete, but could
lead to a superior proposal if developed further, Mr. Lauria said
Hertz will continue to pursue the alternate proposal, but the
company needs to move quickly on the offer on the table from
Dundon, Centerbridge and Warburg, Mr. Lauria said. He said the
company's European operations have an immediate need for cash to
refurbish the rental-car fleet there.
The judge overseeing the bankruptcy said Wednesday that to lock
in that proposal, Hertz could commit to a roughly $75 million
breakup fee, payable to the plan sponsors if the company ultimately
selects a different offer.
Considering that investors have valued the business at roughly
$5 billion to $6 billion, the fee shouldn't be too big an obstacle
for other Hertz bidders to overcome, the company's investment
banker William Derrough testified on Wednesday.
The competition for Hertz also has led to a rally in prices for
its unsecured bonds, meaning that bondholders stand to do well on
debt bought at a discount, when the company's prospects weren't as
Write to Becky Yerak at firstname.lastname@example.org and Alexander
Gladstone at email@example.com
(END) Dow Jones Newswires
April 21, 2021 17:42 ET (21:42 GMT)
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