Hertz Shares Surge on Sale to Knighthead
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In a deal that hands a huge victory to shareholders of bankrupt Hertz Global Holdings Inc., the car renter picked Knighthead Capital Management and Certares Management to buy the company out of Chapter 11, capping a dramatic brawl for control of the company.
The deal, which gives a reorganized Hertz an enterprise value of $7.43 billion, was picked over an offer from a competing group led by Centerbridge Partners, Warburg Pincus and Dundon Capital Partners, according to people with knowledge of the matter, who asked not to be identified because the plan hasn’t been made public. The Knighthead-Certares plan would give equity holders a recovery of about $8 a share — a package that’s made up of about $240 million in cash and warrants for nearly 20% of the reorganized company, the people said.
Hertz shares — which up until two months ago were faced with the prospects of being completely wiped out under an earlier plan — soared as much as 41% May 12 to as high as $5.19. That approached a high of $6.25 last June, when traders snapping up penny stocks on the popular Robinhood app sought to defy decades of convention and make money on a bankrupt company.
Representatives for Knighthead, Certares and Warburg Pincus declined to comment, while Hertz, Dundon and Centerbridge didn’t immediately provide comment.
The Knighthead-Certares group’s win brings the pandemic’s biggest Chapter 11 case nearer to a close, with Hertz seeking to exit court protection in June. Judge Mary Walrath must approve the final plan in Delaware bankruptcy court.
Investment firms have been dueling over ownership of Hertz for weeks, with both groups seeking to top the other with multiple rounds of proposals. An earlier Knighthead proposal valued Hertz’s equity at around $2.25 a share, with an enterprise value of $6.2 billion, Bloomberg previously reported.
As part of the winning plan, Apollo Global Management has committed $1.5 billion of preferred equity. Investors also would have the option to participate in a $1.6 billion rights offering.
The competition came amid surging demand for rentals and summer travel that has let many car renters raise prices while still leaving them without enough vehicles for customers to drive off the lot. Rival Avis Budget Group Inc. has seen its shares more than double this year.
Final proposals from both groups offered lenders and bondholders full repayment along with the share recovery, a relative rarity in bankruptcy proceedings. Hertz initially chose an iteration of the Centerbridge group’s plan, and Walrath last month approved a so-called breakup fee for those funds if they were later outbid.
Hertz sought bankruptcy protection in May 2020 when the near-total shutdown of the global travel industry sent its rental revenues plunging. Equity holders initially appeared to be wiped out, while junior bondholders were slated to take a haircut. Still, Hertz became a popular stock among day traders, who sent shares rocketing on optimism that they could defy the norms of bankruptcy court and win a payout. The stock frenzy even briefly helped the company fund its bankruptcy by selling new equity.
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