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Bond Market News
Hertz to Go with Proposal from New PE Group Led by Centerbridge, Warburg for Exit from Bankruptcy
April 5, 2021
American car rental company Hertz is likely to accept the latest proposal from a private equity (PE) group led by Centerbridge Partners, Warburg Pincus and Dundon Capital Partners for its exit out of bankruptcy. This comes after the new group made its rival proposal last week after Hertz had selected an offer in early March from another PE group consisting of Knighthead Capital and Certares Opportunities. As per bankruptcy court filings, the Centerbridge proposal involves unsecured bondholders receiving 75 cents on the dollar, 5 cents lower than the Knighthead proposal; however, the new proposal gives at least 48% of equity in the Hertz to unsecured bondholders, higher than the Knighthead plan. Hertz said on Saturday that 85% of bondholders supported the Centerbridge plan, stating, “the level of creditor support for the Sponsorship Group’s proposal gave it the clear advantage.” The new proposal, which includes a $2.5bn investment by the PE groups in the reorganized company “maximises the Company’s opportunity to capitalise on the current market conditions for the financing of its business going forward and to exit Chapter 11 in a timely and efficient fashion” as per Hertz.
The car rental company had filed for Chapter 11 (Term of the day, explained below) in May last year as a sharp drop in used car prices amid the pandemic forced Hertz to make payments to asset-backed lenders. A gradual recovery in travel coupled with vaccine rollouts have increased prospects of a speedy recovery for the company, whose bonds have seen an incredible recovery – its 6.25% 2022s have risen from lows of ~12 to 100 and its 7.125% 2026s from ~9 to 100.5 currently. The company is set to exit bankruptcy in June after courts and subsequently creditors approve the new Centerbridge plan.
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