Hertz Drives Off the Bankruptcy Lot

Private equity has produced a number of changes at the rental-car company Hertz since a 2005 buyout. The private equity owners exited years ago, but they left behind a company that Dan Primack of Axios last year called “a Frankenstein of financial engineering.”  One example of that is how Hertz securitizes its fleet of rental vehicles, leasing its cars from a subsidiary.

The next act of private equity engineering at Hertz Global Holdings has now come and it has created something truly amazing: a meaningful payout for equity holders after a bankruptcy.

Hertz emerged from Chapter 11 bankruptcy today. Its new stock starts trading tomorrow under the ticker HTZZ. 

That alone is extraordinary. Shareholders typically get wiped out in a company’s bankruptcy. The Hertz bankruptcy, however, set off a spirited auction that was won by an investor group led by Knighthead Capital Management, Certares Opportunities, and funds run by Apollo Global Management.

"Following its successful restructuring process, Hertz's creditors will receive payment in cash in full and existing shareholders will receive more than $1 billion of value," Hertz said in a statement today. Shares of Hertz common stock will continue to be publicly traded on the over-the-counter (OTC) market, until such time as the company relists on a national securities exchange." 

Andrew Bary of Barron’s says the package has plenty of potential. 

Current shareholders will get a package of cash, 3% of the stock in the reorganized company, and warrants for 18% of the reorganized company. Some holders got additional stock instead of warrants.

The cash portion is $1.53 per current Hertz share. Hertz didn’t spell out the stock and warrant details but it’s expected that current holders will get nearly a tenth of a new share for each current share and nearly 2/3 of a warrant per current share. The new stock could begin trading around $14 Thursday and the 30-year warrants [ticker is HTZZW] at about $9 each.

A combination of a surge in domestic travel, a shortage of vehicles, and a newly reorganized company with a strong balance sheet makes a powerful case for Hertz, Andrew notes. And with new investment, there is potential for further gains. Here's what Greg O’Hara, Certares's founder who will be chairman of the new Hertz, told Andrew last week: 

Our plan for Hertz is to invest heavily in modernizing the company's technology and improving the customer experience. For example, we believe that wait times can be dramatically reduced with an eye to completely eliminated.  Investments like demand forecasting, car telematics, and better mobile integration are immediate ways we can improve operations. Certares will bring expertise where others can't because our travel investment portfolio provides us with unique access to data and demand. Along with a right-sized capital structure and favorable economic tailwinds, we can turn Hertz—which has always had a strong brand—into a stronger company as well.”