Americas Restructuring: Hertz Global’s US$24bn restructuring

IFR Awards 2021
3 min read
Philip Scipio

Back on the road

Hertz Global’s US$24bn restructuring had it all: an unexpected collapse from a once-in-a-lifetime pandemic; distressed debt investors with the vision to recognise a once-in-a-career investment; unexpected interest from unsophisticated “meme stock” investors and a wild turnaround complete with a successful IPO.

The car hire company’s woes started in early 2020, when governments around the world reacted to the coronavirus pandemic by enforcing emergency lockdowns. That froze Hertz’s customer base in its tracks. With little travel and no need to rent cars, Hertz no longer had any cashflow to fund its operations.

Prices of used cars then plummeted. Perversely, that increased Hertz’s monthly payments under its vehicle-fleet-leasing programme, financed through some US$10bn in asset-based securitisations. Consequently, the company filed for bankruptcy protection in late May 2020 facing a liquidity crunch.

One of its biggest investors, Carl Icahn, dumped Hertz’s stock, doubting they would ever recover. But as he sold, a bizarre phenomenon of the pandemic emerged: day traders – some flush with cash from pandemic aid payments – with time on their hands. They began buying shares.

Tom Lauria, global head of White & Case’s bankruptcy practice, said this activity led to “making Hertz maybe the first 'meme stock'". But the surging stock price was still just a side show.

The bankruptcy filing allowed the company to suspend payments while it negotiated new terms with ABS lenders. The negotiations saved the company close to US$3bn of cashflow during the six months it worked through its bankruptcy.

As part of its deal with ABS lenders, Hertz reduced its US fleet by some 200,000 vehicles using the proceeds to pay down ABS debt. As the company negotiated the deal, however, the market for used cars turned around as people stayed off public transportation preferring their own cars.

For Hertz, the shift presented a golden opportunity. The uptick allowed the company to sell vehicles quickly and at great prices, allowing it to cut its ABS debt in half.

Those involved considered tapping into the day-trader demand and selling equity but the US SEC shut down the transaction before it could gain momentum. The major equity offering, which saw the firm re-IPO, had to wait until after the bankruptcy process.

The quick turn in the car market allowed Hertz, led by financial adviser Moelis and law firm White & Case, to pull out of bankruptcy in about a year slashing US$5bn in debt, repaying creditors in full and delivering more than US$1bn in value to shareholders.

“Tom [Lauria] said we were going to be out by June 30, setting a fast pace for all of us … and we took the bull by the horns every step of the way to get it done,” said William Derrough, global co-head of capital structure advisory at Moelis.

The reorganisation plan was ultimately funded with more than US$6.5bn in cash from private equity investors.

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