Hertz selects Centerbridge, Warburg and Dundon as plan sponsors

By Sarah Lizee

Olympia, Wash., April 5 – Hertz Global Holdings, Inc. has selected an enhanced proposal from Centerbridge Partners, LP, Warburg Pincus LLC and Dundon Capital Partners, LLC to provide the equity capital required to fund its exit from Chapter 11, according to a press release issued Saturday.

The company said it is on track to conclude its Chapter 11 case in June.

Hertz filed an amended Chapter 11 plan of reorganization and related disclosure statement on Saturday in the U.S. Bankruptcy Court for the District of Delaware.

The proposed transaction, which remains subject to approval by the bankruptcy court, is supported by holders of over 85% of the company’s unsecured notes, which comprise the majority of creditors in the largest class of claims voting on the plan.

As previously reported, the two leading proposals under consideration had been advanced to the point where either one would leave the company in a significantly strengthened financial position. The other proposal was from Knighthead Capital Management, LLC and Certares Opportunities LLC, the initial proposed plan sponsors.

Hertz said the level of creditor support for the Centerbridge, Warburg and Dundon group's proposal gave it the clear advantage.

“The proposal maximizes the company’s opportunity to capitalize on the current market conditions for the financing of its business going forward and to exit Chapter 11 in a timely and efficient fashion,” Hertz said in the release.

Overview of plan

The plan implies a total enterprise value of $5.36 billion, reflected through the issuance of new first-lien debt and the sale of new preferred and common stock of parent company Hertz Global.

Under the plan, the existing equity of Hertz Global will be extinguished and canceled and will entitle holders of those interests to no rights whatsoever.

The plan contemplates a recapitalization of the debtors through a combination of the issuance of new debt and equity capital. The reorganized debtors will issue $4.22 billion of new reorganized Hertz parent common interests, as follows, subject to dilution from the preferred stock and management equity incentive plan: about 48.2% to holders of unsecured funded debt claims, in exchange for their claims; about 9.5% to be sold to Dundon for $400 million; about 2% to be sold to Centerbridge for $82.5 million; about 2% to be sold to Warburg Pincus for $82.5 million; and the remaining roughly 38.4% of reorganized Hertz parent common interests will be offered under a rights offering to holders of unsecured funded debt claims.

As part of their agreement to sponsor the plan, the members of the informal group of unsecured notes have agreed to exercise the subscription rights provided under the plan to purchase reorganized Hertz parent common interests. The members of the informal group have also agreed to purchase any unsubscribed shares not purchased by the other unsecured funded debt holders.

The plan also provides for the issuance of $385 million of preferred stock that will be sold in equal amounts to each of Centerbridge and Warburg Pincus. The preferred stock is convertible to reorganized Hertz parent common interests. The preferred stock will accrue dividends in the amount of 4% per annum for the first three years, unless converted earlier, payable in the form of additional liquidation preference for the preferred stock.

The plan also provides for the reorganized debtors to obtain a $1.3 billion senior secured term loan to fund plan distributions and a $1.5 billion revolving credit facility to fund their working capital needs.

The holders of the company's €725 million European vehicle notes will be paid in cash in full under the plan. Their guaranty claims against the U.S. entities will be unimpaired and the balance of their debt will be paid by the issuer, Hertz Holdings Netherlands BV.

Holders of general unsecured claims will receive a cash payment estimated to provide a recovery of about 75%.

Administrative, priority and secured claims will be paid in cash in full. In addition, the company's existing equity will be canceled and receive no distribution.

The next step will be for the bankruptcy court to consider approving the terms of the sponsorship group's proposed investment, the disclosure statement with respect to the plan, and related creditor solicitation materials and procedures. All of these matters are scheduled to be heard on April 16.

Hertz is an Estero, Fla.-based car rental company. It filed Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on May 22, 2020. The case number is 20-11218.

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