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Bloomberg

Once-cursed Hertz bounced back so much that even the editors were right

(Bloomberg) – Deep in the pandemic, it wasn’t even clear that Hertz Global Holdings Inc. would be here today, leasing cars, and the surprises didn’t end there. The Wall Street giants who buy out the company in bankruptcy make bondholders whole and, more astonishingly, get about $ 8 per share for shareholders. It’s rare for shareholders to get anything in Chapter 11 cases, let alone those involving companies so severely hampered by Covid-19 lockdowns, and $ 8 stands out for another reason. Before day traders did GameStop Corp. The hottest action on Earth at the start of this year, Hertz was their toy after filing for bankruptcy. They nailed the price, even if they didn’t get any new stock: each of them paid no more than $ 6.25 for a stock which even Hertz said at the time that it could be “worthless”. the most notable rebounds in recent memory, which almost perfectly mirrored the wild V-shaped recovery in the US economy. The company, its creditors and shareholders can thank an incredibly rapid recovery driven by revival in travel demand and consumer confidence. Just two months ago, shareholders were going to be wiped out by his bankruptcy plan, and days ago they were in line for about $ 2.25 Global semiconductor shortage is hampering new car sales , which also helps Hertz. Because used car prices have soared as a result, it can charge customers more and get the best price when selling unnecessary vehicles. “No one could have predicted this confluence of events,” said Maryann Keller, an independent consultant who was a board member of Dollar Thrifty Car Rental, which sold to Hertz in 2012. “Who would have known that the Auto Manufacturers Couldn’t Ship Cars Due to a Semiconductor Shortage? And that this would happen as the economy reopens and travel rebounds. She is not surprised that the company has generated a lot of interest from buyers. “There should be a bidding war,” she said in an interview before the best and latest bids arrive. “It’s partly the name of the brand, partly it’s international. They can be successful. They just need to have the right people in place. Things are not perfect at Hertz. The company’s sales, which hit an annual record of $ 9.8 billion in 2019, have not returned to pre-pandemic levels. But optimism abounds as the economy booms and Americans, annoyed after being stranded at home, hit the road in rental cars. The auction pitted Knighthead Capital Management and Certares Management against a group led by Centerbridge Partners, Dundon Capital Partners and Warburg Pincus. Knighthead and Certares won with a plan that values ​​Hertz, including debt, at around $ 7.4 billion. dollar question who asked not to be named discussing a private deal. The proposal offers full repayment to debt holders and gives institutional and accredited investors about $ 240 million in cash and the ability to participate in a $ 1.6 billion rights offering or warrants for about $ 20. % of the company reorganized. That leaves out guys like the college students who speculated on Hertz after last year’s buzz on Reddit. The betting community will qualify. Prior to the event, contestants were already hanging Chapter 11 rarities like full debt collections and money for stocks. The long-drawn-out fight was almost unthinkable in May 2020, when Hertz rushed into bankruptcy protection after pandemic shutdowns slashed healthcare revenues to almost zero in a matter of weeks. Shareholders typically get nothing in Chapter 11 proceedings, all recovered money going to creditors instead. Initially, this was to be the case with Hertz, with a reorganization plan filed on March 2 completely wiping out the shareholders. “The rising value that everyone is seeing here is really a function of the company’s ability to meet its business plan forecasts in 2022 and 2023.” Hertz attorney Thomas Lauria said at a hearing bankruptcy in April. “It depends on the size, the aging and the aging of the fleet over those two years.” And this is where the global chip shortage could become a problem, whether it prevents Hertz from buying enough new cars or forces it to keep buying used cars – with their alienating smells and stains for them. the customer – at high prices. “All the benefits that people are so excited about could be lost or impaired,” Lauria said. For now, chip disruption is an advantage. Prices for used rental cars rose 32% in April from a year earlier, according to Manheim, the country’s largest used car auction house. Not only does this mean that Hertz gets more when downsizing its fleet, it also means that the company doesn’t have to depreciate the value of cars as much as it still owns, which contributes to profits. “The used vehicle market has recovered, which has been a happy outcome for Hertz in hindsight,” said George Schultze, Founder and CEO of Schultze Asset Management. “If that wasn’t the case, then the requirement that the company sell its vehicles would have meant a haircut for debt holders, even in the highest part of the capital structure.” The return of Hertz, with a full recovery for bondholders after trading. 10 cents on the dollar a year ago “was an incredible return” for credit investors, Schultze said. But the question is whether after the bankruptcy Hertz can avoid further surprises. “, did he declare. The case is The Hertz Corporation, 20-111218, US Bankruptcy Court for the District of Delaware (Wilmington). with the most trusted source of business news. © 2021 Bloomberg LP

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