Estero-based Hertz emerged from Chapter 11 bankruptcy
Hertz came out of bankruptcy.
The Estero-based car rental company, in business for over 100 years, announced its planned successful exit from Chapter 11 bankruptcy on Wednesday afternoon.
In a press release, Hertz Global Holdings, parent company of The Hertz Corp., said it had “become a financially and operationally stronger company and well positioned for the future.”
Bankruptcy Judge Mary Walrath, who handled the Delaware case, confirmed Hertz’s reorganization plan on June 10, paving the way for his return.
In endorsing the plan, Walrath called the result “fantastic”, saying it exceeded “any result I have seen in any Chapter 11 case I have faced in my 20 years and more”.
With more than $ 5.9 billion in new equity provided by a new group of investors, Hertz said it has reduced corporate debt by nearly 80% and “dramatically improved its liquidity to fund operations and growth. future “.
The investment group is made up of Knighthead Capital Management LLC, Certares Opportunities LLC and Apollo Capital Management LP. The trio fought hard for the investment opportunity, beating another group after a long bidding war at an auction.
According to Bloomberg, the winning bid valued Hertz at around $ 7.4 billion, including debt.
Hertz said it eliminated nearly $ 5 billion in debt with the new cash injection, including all of its European branch’s corporate debt.
In addition, Hertz said he emerged with $ 2.8 billion in exit credit and $ 7 billion in asset-backed vehicle financing on terms he described as “extremely favorable.”
The overall interest rate on the financing of a new vehicle is less than 2%.
The news is not all rosy.
With Hertz coming out of bankruptcy, The Wall Street Journal reported that Wells Fargo Bank NA promptly filed a complaint, representing some bondholders who allege that they are owed full payments, or “premiums that must be paid under certain loan agreements when the bonds are repaid before their due date “.
Hertz does not comment on pending litigation.
Hertz announces changes to its board of directors
With its release, Hertz also announced changes to its board of directors.
The new board of directors of the company has eight members. Three more could be appointed in the future.
The first members of the board of directors include founder of Certares Michael Gregory O’Hara as chairman and co-founder of Knighthead Capital Thomas Wagner as vice chairman, as well as managing director of Certares Colin Farmer, l Knighthead partner Andrew Shannahan, Apollo partner Christopher Lahoud and senior advisor to TPG Capital. and former Ford Motor Co. CEO Mark Fields.
Paul Stone, Chairman and CEO of Hertz, and Vincent Intrieri, CEO and Founder of VDA Capital Management LLC, remain on the Board of Directors.
In a statement, Henry Keizer, outgoing chairman of the board, said: “In the face of the epic and unprecedented challenges presented by the COVID-19 pandemic, and unfazed by the first changes in leadership, we have remained focused on the stabilizing the business and seizing opportunities to mitigate losses and create value for our stakeholders. “
As a result of these efforts, shareholders will receive payment, which is highly unusual in a Chapter 11 case. Initially, the total payment in cash and new shares was valued at around $ 8 per share, but it could end up being be even higher.
“When the economy started showing signs of recovery earlier this year, we were perfectly positioned to drive a competitive process that would maximize recoveries. The result – paying our nearly $ 19 billion in creditors in full and returning substantial value to our shareholders – is remarkable, ”said Keizer.
Hertz said it has undertaken a series of operational measures to create a more focused and profitable business in parallel with its financial restructuring. This includes cost reduction and proper sizing of its fleet.
Hertz looks ahead
Another important move in bankruptcy? Hertz sold its fleet rental business in Donlen for $ 891 million in cash.
Now, Hertz said he was “on track to achieve strong financial results in 2021”, largely due to a sharp increase in car rentals in the United States, driven by a drop in new cases of COVID and an increase in vaccinations nationwide that have fueled more travel.
In a statement, Stone described the exit from bankruptcy as “a milestone in Hertz’s 103-year history.”
“Thanks to the tireless efforts of our Board of Directors and team, we move forward in an incredibly strong position with an exciting road ahead of us. Now, with a strong financial foundation, a leaner and more efficient operating model and ample liquidity to invest in our business, Hertz has exceptional potential to generate profitable long-term growth, ”he said.
In the US and internationally, Stone said, the company is now “ready to capitalize on our industry leadership, deep operational expertise and our iconic global brand.”
“We look forward to a bright future as a dynamic part of the growing travel industry and as a trusted partner for the mobility needs of our customers,” he said.
What observers have to say about Hertz
Andrew Hill with Naples-based Andrew Hill Investment Advisors has been very critical of Hertz, but with a “clean fresh start,” he said, the company deserves another look.
“I started to take a fresh look despite my negative bias,” Hill said.
In the near term, he expects Hertz to benefit greatly from the post-pandemic travel spike.
“I’ll be digging into the finances and strategies of the company soon,” Hill said.
Hertz plans to release its second quarter results in mid-August, which will give Hill and others on the business watchers a better idea of its potential for a turnaround.
Shares of the former company last closed at $ 8.74 on Wednesday.
With the approval of the bankruptcy judge, Hertz sold $ 29 million in stock last year to raise funds and take advantage of the volatility of its stocks.
Next, Hertz quickly suspended its offer to sell up to $ 500 million in new shares after the Securities and Exchange Commission temporarily halted trading in its shares – twice – and alerted the company to an ongoing review. of his offer.
Some worried that amateur investors who bet on Hertz and buy the new bankruptcy stocks through apps like Robinhood would lose all their money, but they fared much better than anyone could have imagined.
On Thursday, shares of the reorganized company, traded under the ticker HTZZ, opened at $ 22 on the OTC bulletin board, designed for small businesses. They then yoyoed up and down, before closing at $ 26.99.
It is hoped that the company’s shares will once again be listed on a national stock exchange such as the Nasdaq or the New York Stock Exchange.
The former Hertz was delisted from the New York Stock Exchange in October due to his financial problems.
Hertz also issued new warrants, under the symbol HTZZW, to purchase its shares. They closed at $ 11.95 on Thursday, then opened at $ 20 on Friday.
Bankruptcy attorney Glenn Moses of Genovese Joblove & Battista in Miami, who followed the case, said it could have dragged on much longer if the reorganization plan had not treated creditors so well, paying them off fully.
“Ultimately, when you satisfy creditors’ claims in full and restore equity to equity as part of a successful plan, there is less to fight,” he said. . “And so, that might be part of the reason the case ended in a relatively short period of time.”
He described Hertz’s exit from bankruptcy as a “significant achievement”, especially given the amount of debt and the number of creditors and investors involved.
“Certainly the franchises and the creditors breathe a huge sigh of relief at the outcome, especially given the questions about the company’s ability to survive over the past year,” said Moses.
What else awaits Hertz?
There is “a lot of work to work on in the coming months,” O’Hara, with Certares, said in a statement.
“Our team is ready to go,” he said. “Most importantly, we plan to invest heavily in improving Hertz’s technology and customer experience. We have unique data and insights across our entire travel investment portfolio that will help us support the leadership team and make Hertz a better company.
In a statement, Knighthead’s Wagner said: “Hertz has been a major player in traditional mobility for decades and is now positioned as a key player in the next generation of mobility. We are excited about the prospects for growth.
On Thursday, the new Hertz announced improvements to its loyalty program.
While some have attributed the outcome of the Hertz bankruptcy case to luck and timing, coinciding with the recovery of the travel and tourism industry after the COVID-19 pandemic, others see it. differently.
Thomas Lauria, a senior lawyer who helped Hertz out of bankruptcy, told Bloomberg that the restructuring team had worked quickly to stabilize the company through the Chapter 11 process so that it could capitalize on the opportunities that presented themselves.
“We started paddling like hell,” he told a reporter, “so that when the wave came we were able to catch it.”
By the time of his Chapter 11 filings last May, Hertz had racked up nearly $ 20 billion in debt, threatening his survival as he faced a sudden and virtual shutdown due to COVID.
In addition to its eponymous brand, Hertz operates the Dollar and Thrifty car rental services.
In May 2013, Hertz announced the relocation of its global headquarters from New Jersey to Estero following the acquisition of Dollar Thrifty Automotive Group.
The new multi-million dollar headquarters opened in 2015.