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Hertz shareholders have a big profit at the bankruptcy auction

Hertz shareholders want to recover hundreds of millions of dollars after the car rental company asked for a private capital consortium to get out of bankruptcy protection a year ago.

Hertz said a team comprising Knighthead Capital, Certares Opportunities and Apollo Global Management prevailed over another private equity consortium in a court auction in Delaware court this week.

Hertz he failed As the May 2020 pandemic weighed on demand for business and leisure travel and the fall in the price of used cars forced it to send cash to its vehicle lenders.

The winning bid is valued at about $ 7 billion by Hertz. The Knighthead team signed an agreement in early March to acquire Hertz, which was valued at less than $ 5 billion. This started the turn of the counterparts of a competing team that included Centerbridge Partners, Warburg Pincus and Dundon Capital.

The agreement will pay off all creditors at Hertz in full, as the company will raise more than $ 7 billion in new debt and equity. Overall, the reorganized Hertz will have less than $ 1 billion in net debt.

Current shareholders will receive about $ 1.50 in cash per share, along with a small portion of the newly reorganized Hertz capital, as well as the opportunity to obtain guarantees or purchase shares there.

One person involved in the process said the value of that package could approach $ 8 per share. However, this figure is based on the views on the overall value of the reorganized Hertz and the technical assessment of the guarantees.

Hertz’s shares were trading at more than $ 5 on Wednesday, which meant a market capitalization of $ 800 million.

Both bidding groups proposed the removal of the existing shareholders, a common practice in bankruptcy. Last June, the company tried sell shares to partially fund the bankruptcy, as retailers using the Robinhood app spent more than $ 5 on Hertz’s share price.

After the U.S. Securities and Exchange Commission expressed concern about the sale of securities approved by the company, Hertz rejected the offer.

A group of hedge funds accumulated shares of Hertz earlier this year, arguing that the company had a positive equity value in court. These investors eventually partnered with the Knighthead team to provide some of the equity financing proposed in the winner’s bid.

The surprising rise in Hertz’s valuation reflects optimism about the strong recovery in the U.S. economy and the rapid turnaround in leisure travel.

Interested Hertz groups now plan to vote on the plan, which will also have to be confirmed by the bankruptcy court at its June 10 session. The company expects to go bankrupt by the end of June, the beginning of the peak travel season.


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