Hertz reached a milestone in its Chapter 11 process by filing its proposed plan of reorganization and related disclosure statement with the U.S. Bankruptcy Court for the District of Delaware.

As part of the proposed plan, Knighthead Capital Management and its affiliates and Certares Opportunities and its affiliates will serve as the plan sponsors and will commit to invest up to $4.2 billion to purchase up to 100% (but not less than a majority) of the common stock of the reorganized Hertz. This proposed investment, if consummated, will, together with a new $1 billion first lien financing, a new $1.5 billion revolving credit facility and a new asset-backed securitization facility to finance Hertz’s U.S. vehicle fleet, provide the basis for the proposed plan and the funding needed for Hertz to complete its financial restructuring and emerge from Chapter 11 in early to mid-summer.

The equity investment will take the form of a direct purchase of up to approximately $2.3 billion of common equity of reorganized Hertz, together with a commitment to backstop a rights offering for up to approximately $1.9 billion of common equity in reorganized Hertz, which will be made available to unsecured creditors as part of the plan. The proposed plan is subject to court approval and the satisfaction of certain conditions, including all conditions to the plan sponsors’ commitment, which is subject to, among other things, the completion of satisfactory documentation and due diligence.

The proposed plan would provide for a new capital structure that would reduce Hertz’s corporate debt and provide for a less leveraged vehicle debt structure. If confirmed, the proposed plan would provide for the payment in cash in full of all of Hertz’s existing first and second lien debt and all administrative and priority claims, including the obligations owed under Hertz’s $1.65 billion debtor-in-possession facility. Confirmation of the proposed plan also would result in a 70% cash recovery to general unsecured creditors (including the guarantee of the €725 million ($874.74 million) Euronote facility issued by Hertz’s affiliate, HHN), subject to the right of the holders of funded unsecured debt claims to elect to take a portion of their recovery in the form of common equity in reorganized Hertz. In addition, it is contemplated that certain obligations of Hertz’s international businesses, which are not in Chapter 11, will be restructured on a consensual basis.

The next step in the process is for the bankruptcy court to approve the terms of the plan sponsors’ proposed investment, the disclosure statement and creditor solicitation materials at a hearing scheduled for April 16. Assuming court approval, the disclosure statement and plan will be mailed to Hertz’s creditors for a vote and the court will schedule a hearing to confirm the plan. Changes may be made to the plan and disclosure statement prior to final creditor and court approval.

“We are excited to reach this important milestone in our restructuring process. Our plan of reorganization provides us a clear path forward to completing our financial restructuring and emerging from Chapter 11 by early to mid-summer,” Paul Stone, president and chief executive of Hertz, said. “The support of the plan sponsors demonstrates their confidence in Hertz’s growth potential; moreover, they bring valuable experience in the travel and leisure industry.

“We’ve been making excellent progress on our financial and operational initiatives and repositioning our business as we prepare for increased travel demand as the pandemic subsides. We’re grateful for the commitment of our exceptional employees and teams around the world working tirelessly to maintain smooth operations with safe and outstanding service to our customers. We would like to thank our customers, franchise partners, vendors and other business partners for their continued support and loyalty. Based on actions we’ve taken during the restructuring process, we believe Hertz will be well-positioned to resume growth and secure the long-term success of our iconic brand.”

Certares and Knighthead recently formed the CK Opportunities Fund, a co-managed vehicle specifically dedicated to investments in travel and leisure. Knighthead is a credit investment management firm established in 2008 with $5.5 billion of assets under management. Certares is a private investment platform dedicated to investing in the travel, tourism and hospitality sectors with approximately $4.5 billion of assets under management.

White & Case is serving as legal advisor, Moelis & Co. is serving as investment banker and FTI Consulting is serving as financial advisor to Hertz.