Shares in Hertz suddenly look interesting. The market value of the car rental mainstay hit $3bn in February 2020. Then travel shutdowns and a complex capital structure forced Hertz to seek court protection from creditors. A restructuring proposal released last week shows how it could thrive under new private equity owners as tourism and travel snap back.
The plan also confirms that existing shareholders have been wiped out. So much for the retail traders using the Robinhood app who bizarrely sent Hertz shares flying last summer.
But as restructurings go, Hertz’s looks relatively clean. Senior creditors will have their claims paid off fully in cash. Unsecured debt holders, whose claims total roughly $4bn, are in line for a recovery of 70 cents in the dollar in cash. That figure is relatively high — and it could rise close to par. Essentially, all creditors of Hertz are getting close to being made whole with losses concentrated among existing shareholders.
The key element of the restructuring plan is an equity infusion of $4.2bn led by two investment firms, Knighthead Capital and Certares. These junior bondholders will also be given the chance to purchase reorganised Hertz equity. Those Hertz junior bonds are now trading above 80 cents on the anticipation of receiving valuable equity in the new Hertz.
The hedge fund cash investment into Hertz is predicated on an agreed-upon enterprise value for the business of $4.8bn (the new Hertz will carry little corporate debt). Projections released in court filings show that Hertz forecasts Ebitda of $859m in 2023 implying a forward multiple of just under 6 times. That attractive valuation reflects the heavy risks investors are taking on. The pace and extent of the travel industry’s recovery is hard to forecast.
Hertz rival Avis has seen its shares jump more than 700 per cent from lows last March. Battered shareholders of Hertz must wonder if last May’s bankruptcy could have been avoided. Instead, savvy hedge funds have struck a sweet deal. Business has returned to normal on Wall Street faster than in car rentals.
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