The pandemic certainly impacted Hertz Global Holdings as much as any company with a connection to vehicles.
But the company shared several positive developments in recent days, including the closing of its Donlen sale, more than $1 billion in first quarter revenue as well as how its exit from Chapter 11 bankruptcy will be funded.
First on Friday, Hertz reported results for its first quarter with revenue of $1.3 billion, net income attributable to the company of $190 million and adjusted corporate EBITDA of $2 million.
According to a news release, Hertz said its liquidity at the end of Q1 was $1.1 billion.
“This quarter we realized the first effects of the leisure travel rebound and capitalized on strong demand-driven pricing in destination markets that exceeded 2019 levels,” Hertz president and chief executive officer Paul Stone said.
“We’re continuing to see improved demand and are optimistic about a sustained recovery,” Stone continued. We’re actively replenishing our fleet, despite the constraints of the global semiconductor shortage and its impact on the automotive supply chain.
“Most importantly, I’m exceptionally proud of our employees who are working tirelessly to serve our customers as they’re ready to be on the road again,” he added.
During the quarter, Hertz said it closed on the sale of substantially all of the assets of its Donlen vehicle leasing and fleet management business to Athene Holding for $891 million in cash proceeds, subject to certain adjustments.
“Notably, we are also making great progress towards concluding the bankruptcy process,” Stone said. “We are actively engaged with potential plan sponsor groups which we anticipate will deliver a robust recovery for creditors and shareholders. We remain on track to emerge in June and are poised to do so with more efficient operations and a stronger balance sheet for the future.”
The next step in that bankruptcy process arrived on Wednesday when Hertz announced a decision following the completion of the auction previously approved by the U.S. bankruptcy court in its Chapter 11 case.
According to another news release, Hertz has selected and approved a revised proposal from certain funds and accounts managed by affiliates of each of Knighthead Capital Management, Certares Opportunities and Apollo Capital Management to provide the equity capital required to fund Hertz’s revised plan of reorganization and exit from Chapter 11.
The proposed agreements made with the organization collectively now known as the KHCA Group, as well as any necessary modifications to the plan and solicitation procedures, are subject to the approval of the bankruptcy court at a hearing scheduled for Friday.
Under the revised proposal, Hertz explained its Chapter 11 plan will be funded through direct common stock investments from the KHCA Group and certain co-investors aggregating $2.781 billion, the issuance of $1.5 billion of new preferred stock to Apollo and a fully backstopped rights offering to the company’s existing shareholders to purchase $1.635 billion of additional common stock.
Hertz also indicated the revised Plan would provide for the payment in cash in full of all administrative, priority, secured, and unsecured claims in the Chapter 11 cases and would deliver significant value to the company’s existing shareholders including:
— $239 million of cash
— Common stock representing 3% of the shares of the reorganized company that are subject to dilution from warrants and equity issued under a new management incentive plan
— 30-year warrants for 18% of the common stock of the reorganized company that are also subject to dilution by a new management incentive plan with a strike price based on a total equity value of $6.5 billion, or the opportunity, for eligible shareholders, to subscribe for shares of common stock in the $1.635 billion rights offering at plan equity value
As previously announced, the company highlighted that two investor groups have been competing to fund Hertz’s Chapter 11 exit.
On April 21, the bankruptcy court overseeing Hertz’s Chapter 11 cases authorized Hertz to begin soliciting votes on its Chapter 11 plan and approved a group consisting of:
— Centerbridge Partners
— Warburg Pincus
— Dundon Capital Partners
— An ad hoc group of the company’s unsecured noteholders know collectively as the CWD Group.
“When it became apparent that the competition to sponsor the company’s plan would continue, the company sought and obtained court approval of bidding procedures and an auction process to ensure that it received the highest and best sponsorship proposal within a timeframe that would permit the company to continue working toward a planned exit from Chapter 11 by June 30,” Hertz said.
“A robust competition between the CWD Group and the KHCA Group ensued, concluding with the selection of the revised KHCA Group’s proposal late (Tuesday) following the auction,” Hertz continued.
As with the CWD Group’s previous proposal, Hertz pointed out the KHCA Group’s proposal would eliminate approximately $5.0 billion of corporate debt — including the complete elimination of all corporate debt on Hertz’s European business — and provide the company with more than $2.2 billion of global liquidity.
Hertz also noted that the KHCA Group’s proposal would replace the bridge financing previously provided by the CWD Group to fund the company’s European fleet needs prior to the plan’s consummation.
The debt funding commitments for Hertz’s Chapter 11 plan, which were approved by the court earlier this week, will remain in place under the KHCA Proposal, according to the company.
“We are very pleased that our plan process produced such a tremendous result for our creditors and shareholders,” Stone said in the news release. “We appreciate the strong interest in Hertz from the competing plan sponsors and thank them for their active engagement, which provided us with excellent options for our exit from Chapter 11.
“We look forward to working with the KHCA Group to complete the remaining steps in our restructuring and best position Hertz for the future,” he continued.
Hertz went on to mention the proposed deal with the KHCA Group is reflected in definitive documents executed by the plan sponsors, including:
— An equity purchase and commitment agreement
— A plan support agreement
— A bridge financing commitment for Hertz International
— An amended Chapter 11 plan of reorganization.
Hertz said these documents, together with an amended disclosure statement, were to be filed with the bankruptcy court on Wednesday.
If the bankruptcy court approves the revised agreements with the KHCA Group at the hearing scheduled for Friday, Hertz reiterated that it would terminate its agreements with its existing plan sponsorship group — which still remain in effect — and execute the new agreements with the KHCA Group.
Another court hearing to confirm Hertz’s plan of reorganization is scheduled for June 10.
“Our proposed plan provides a robust recovery and excellent value for all of our stakeholders and enables Hertz to emerge as a much stronger, more competitive company,” Stone said. “During our restructuring, we have made material improvements in our operational efficiency and have built added cost discipline into our business.
“Now, we look forward to implementing our Chapter 11 plan, which will substantially strengthen our financial structure by eliminating 79% of our corporate debt,” he continued. “We are well-positioned to take advantage of increasing global travel demand and new long-term growth opportunities. We are excited about Hertz’s future and the benefits for all of our stakeholders — including our employees and customers as well as our investors, franchisees and business partners.”
White & Case LLP is serving as a legal advisor. Moelis & Co. is serving as an investment banker. FTI Consulting is serving as a financial advisor.
To view court documents or filings, go to https://restructuring.primeclerk.com/hertz or call (877) 428-4661 (toll-free in the U.S.) or (929) 955-3421 (from outside the U.S.).
Source : AutoFinanceNews
