Following the completion of an auction previously approved as part of its Chapter 11 case, Hertz selected and approved a revised proposal from certain funds and accounts managed by affiliates of each of Knighthead Capital Management, Certares Opportunities and Apollo Capital Management (together with Knighthead and Certares, the KHCA group) to provide the equity capital required to fund Hertz’s revised plan of reorganization and exit from Chapter 11. The proposed agreements with the KHCA group, as well as any necessary modifications to the plan and solicitation procedures, are subject to the approval of the bankruptcy court at a hearing scheduled for May 14.

Under the revised proposal, Hertz’s Chapter 11 plan will be funded through direct common stock investments from the KHCA group and certain co-investors aggregating $2.781 billion, the issuance of $1.5 billion of new preferred stock to Apollo and a fully backstopped rights offering to the company’s existing shareholders to purchase $1.635 billion of additional common stock.  The revised plan would provide for the full payment in cash of all administrative, priority, secured and unsecured claims in the Chapter 11 case and would deliver value to the company’s existing shareholders including:

  • $239 million of cash
  • Common stock representing 3% of the shares of the reorganized company (subject to dilution from warrants and equity issued under a new management incentive plan).
  • 30-year warrants for 18% of the common stock of the reorganized company (subject to dilution by a new management incentive plan) with a strike price based on a total equity value of $6.5 billion, or the opportunity, for eligible shareholders, to subscribe for shares of common stock in the $1.635 billion rights offering at plan equity value

As previously announced, two investor groups competed to fund Hertz’s Chapter 11 exit. On April 21, the bankruptcy court overseeing Hertz’s Chapter 11 case authorized Hertz to begin soliciting votes on its Chapter 11 plan and approved a group consisting of Centerbridge Partners, Warburg Pincus, Dundon Capital Partners and an ad hoc group of the company’s unsecured noteholders (collectively, the CWD group) as the sponsors of the plan. When it became apparent that the competition to sponsor the company’s plan would continue, the company sought and obtained court approval of bidding procedures and an auction process to ensure that it received the highest and best sponsorship proposal within a timeframe that would permit the company to continue working toward a planned exit from Chapter 11 by June 30. A competition between the CWD group and the KHCA group ensued, concluding with the selection of the revised KHCA group’s proposal following the auction.

As with the CWD group’s previous proposal, the KHCA group’s proposal would eliminate approximately $5 billion of corporate debt (including the complete elimination of all corporate debt on Hertz’s European business) and provide the company with more than $2.2 billion of global liquidity. The KHCA group’s proposal also will replace the bridge financing previously provided by the CWD group to fund Hertz’s European fleet needs prior to the plan’s consummation. The debt funding commitments for Hertz’s Chapter 11 plan, which were approved by the court earlier this week, will remain in place under the KHCA proposal.

“We are very pleased that our plan process produced such a tremendous result for our creditors and shareholders. We appreciate the strong interest in Hertz from the competing plan sponsors and thank them for their active engagement, which provided us with excellent options for our exit from Chapter 11. We look forward to working with the KHCA group to complete the remaining steps in our restructuring and best position Hertz for the future,” Paul Stone, president and CEO of Hertz, said. “Our proposed plan provides a robust recovery and excellent value for all of our stakeholders and enables Hertz to emerge as a much stronger, more competitive company. During our restructuring, we have made material improvements in our operational efficiency and have built added cost discipline into our business. Now we look forward to implementing our Chapter 11 plan, which will substantially strengthen our financial structure by eliminating 79% of our corporate debt. We are well-positioned to take advantage of increasing global travel demand and new long-term growth opportunities. We are excited about Hertz’s future and the benefits for all of our stakeholders — including our employees and customers as well as our investors, franchisees and business partners.”

The proposed deal with the KHCA group is reflected in definitive documents executed by the plan sponsors, including:

  • An equity purchase and commitment agreement
  • A plan support agreement
  • A bridge financing commitment for Hertz International
  • An amended Chapter 11 plan of reorganization

These documents, together with an amended disclosure statement, will be filed with the bankruptcy court. If the bankruptcy court approves the revised agreements with the KHCA group at the hearing scheduled for May 14, Hertz will terminate its agreements with its existing plan sponsorship group (which remain in effect) and execute the new agreements with the KHCA group.

A court hearing to confirm Hertz’s plan of reorganization is scheduled for June 10.