Hertz files fourth amended plan after receiving enhanced proposals

By Sarah Lizee

Olympia, Wash., April 21 – Hertz Global Holdings, Inc. filed a fourth amended Chapter 11 plan and related disclosure statement after receiving enhanced proposals from both current and previous plan sponsors, according to Wednesday filings with the U.S. Bankruptcy Court for the District of Delaware.

Hertz said that early in the morning on Friday, on the eve of the hearing to consider approval of the disclosure statement for the third amended plan, the debtors received an unsolicited proposal from its initial plan sponsors, Knighthead Capital Management, LLC and Certares Opportunities LLC.

Based on this development, the court continued the disclosure statement hearing to April 21.

Hertz said that in the meantime it negotiated with the initial plan sponsors and its current plan sponsors, Warburg Pincus LLC, Centerbridge Partners LP and Dundon Capital Partners LLC, regarding the terms of their proposals.

Warburg, Centerbridge and Dundon agreed to enhance to their proposal, which was embodied in the third amended plan, including an increase in the general unsecured recovery cash pool amount that will result in an estimated 100% recovery on account of allowed general unsecured claims, provided that allowed general unsecured claims do not exceed $550 million plus the proceeds from the specified causes of action. The enhanced proposal also includes new warrants to be distributed on account of existing Hertz parent interests, compared to no distribution to shareholders previously.

Hertz said that while it has concluded that Warburg, Centerbridge and Dundon’s proposal is the highest and best proposal currently available, it may seek confirmation of a modified plan that embodies a different restructuring proposal sponsored by the current plan sponsors, the initial plan sponsors, another sponsor group or no sponsors at all.

The fourth amended plan contemplates a recapitalization of the debtors through a combination of the issuance of new debt, warrants and equity capital.

The warrants will have a term of six years and be in an amount equal to 4% of pro forma equity, after dilution from preferred stock, but before dilution from the management incentive plan. The strike price is $6.1 billion.

Under the plan, the reorganized debtors will issue new reorganized Hertz parent common interests, as follows, subject to dilution:

• About 48.2% to the holders of unsecured funded debt claims, pro rata in exchange for those 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 the rights offering to all holders of unsecured funded debt claims, pro rata.

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, compounded quarterly, 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 funds generated by the transactions will be used, in part, to provide the following distributions to creditors:

• Payment in full of administrative claims, including all amounts due in respect of the debtors’ debtor-in-possession financing, cure costs arising from the assumption of executory contracts and unexpired leases, section 503(b)(9) claims, and accrued professional fees;

• Payment in full of claims arising from the debtors’ pre-petition first-lien facilities;

• Payment in full of claims arising under the debtors’ pre-petition second-lien notes;

• Payment in full of other secured claims and claims entitled to priority under section 507(a) of the Bankruptcy Code;

• Payment in full of claims on account of the debtors’ guarantee of the HHN notes; and

• Cash distributions to holders of general unsecured claims in the estimated amount of 100% of the allowed amount of those claims.

The holders of unsecured funded debt claims will receive 48.2% of the reorganized Hertz parent common interests, as well as certain subscription rights. Based on a valuation performed by Moelis & Co. LLC, which indicates the midpoint equity value of the reorganized debtors at $4.51 billion, unsecured funded debt holders will receive a recovery of about 75% on account of their claims.

The subscription rights permit holders to purchase pro rata shares of reorganized Hertz parent common interests under the rights offering at a per share price based on a 6.7% discount to plan equity value.

The plan equity sponsors’ commitment to purchase reorganized Hertz parent common interests is at the same per-share price offered to holders of unsecured funded debt claims under the rights offering.

In addition to the transactions described above, the plan provides for the refinancing of the company’s U.S. ABS facilities and the continuation of the company’s foreign ABS facilities.

The debtors will also assume their collective bargaining agreements, assume the Hertz Corp. account balance defined benefit pension plan, and continue to administer and keep in effect the defined benefits plans sponsored by non-debtor affiliate Puerto Ricancars, Inc.

Finally, the plan includes the payment in full of the notes issued by non-debtor affiliate Hertz Holdings Netherlands BV and an injection of cash prior to the effective date to meet the liquidity needs of the debtors’ European business.

Specifically, as part of their agreement to sponsor the plan, some of the plan sponsors have agreed to provide an about $295 million interim facility to fund the European businesses’ immediate cash needs. The facility will be repaid upon the effective date.

Hertz is an Estero, Fla.-based car rental company. It filed Chapter 11 bankruptcy on May 22, 2020. The case number is 20-11218.

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