Hertz Exits Bankruptcy. What Investors Can Expect.

Shares of the reorganized company should begin trading Thursday under the ticker HTZZ and newly issued warrants to buy stock in the reorganized company will trade as HTZZW. The company said the stock would trade over the counter until it lists on national exchange, likely the New York Stock Exchange or Nasdaq.

Current shareholders will get a package of cash, 3% of the stock in the reorganized company, and warrants for 18% of the reorganized company. Some holders got additional stock instead of warrants.

The cash portion is $1.53 per current Hertz share. Hertz didn’t spell out the stock and warrant details but it’s expected that current holders will get nearly a tenth of a new share for each current share and nearly 2/3 of a warrant per current share. The new stock could begin trading around $14 Thursday and the 30-year warrants at about $9 each.

There are expected to be about 472 million new Hertz shares outstanding and 85 million to 90 million warrants. The new company could be valued at about $6.6 billion with the warrant exercise price at an estimated $13.80 a share, or a $6.5 billion equity value.

The company has cut debt significantly while under Chapter 11 protection and may emerge with little or no net corporate debt, although the company didn’t spell out its net debt position.

Hertz has a new $7 billion asset-backed facility that finances its rental car fleet and noted that the average rate on it is below 2%. It’s believed the old facility had an average rate of about 3%. Hertz termed the rate on its new debt as “extremely favorable.”

Hertz shares have rallied recently, gaining 30% this week, on optimism about the rental car business and Hertz’s prospects.

Rental car companies are enjoying a bonanza this summer thanks to strong pricing amid high demand and a depleted supply of rental cars. Hertz had nearly 300,000 vehicles domestically at the end of the first quarter. 

Hertz said that it took a series of steps to improve its business during bankruptcy including cut costs: “These efforts, combined with a sharp increase in car rentals in the U.S. and the continued strength in used car sales, are putting the company on track for strong financial results in 2021.”

An investor group led by Knighthead Capital, Certares Management and Apollo Global Management won a bidding war for the company in bankruptcy court. The investor group is putting $5.9 billion of equity into Hertz with Apollo buying $1.5 billion of new preferred stock.

“Our plan for Hertz is to invest heavily in modernizing the company’s technology and improving the customer experience. For example, we believe that wait times can be dramatically reduced with an eye to completely eliminated,” Greg O’Hara, a senior managing director and founder of Certares told Barron’s.

“ Investments like demand forecasting, car telematics, and better mobile integration are immediate ways we can improve operations. Certares will bring expertise where others can’t because our travel investment portfolio provides us with unique access to data and demand. Along with a right-sized capital structure and favorable economic tailwinds, we can turn Hertz—which has always had a strong brand—into a stronger company as well.”

Hertz also announced the composition of its new board of directors.The new board will initially include eight members with up to three additional directors to be named in the future. The eight members named include O’Hara as chairperson; Knighthead Capital co-founder  Thomas Wagner  as vice chairperson; Certares senior managing director Colin Farmer; Knighthead Partner Andrew Shannahan; Apollo partner Christopher Lahoud; TPG Capital senior advisor and former CEO of Ford Motor Mark Fields ; current Hertz Board member  Vincent Intrieri ; and Hertz President and CEO  Paul Stone

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