The Hertz Corporation – Decides on Knighthead Capital and Certares as Plan Sponsors ($2.283bn Direct Investment and Backstop of $1.97bn Rights Offering), Files Plan and Disclosure Statement, Aims to Exit Bankruptcy by Mid-Summer

March 2, 2021 – Further to the agreement of Knighthead Capital Management, LLC and its affiliates ("Knighthead") and Certares Opportunities LLC and its affiliates ("Certares") to serve as Plan sponsors (emerging from a field of three serious contenders), the Debtors have filed a Plan of Reorganization and a related Disclosure Statement. The adequacy of the Disclosure Statement is scheduled to be considered at an April 16th hearing and the Debtors are aiming to emerge this summer.

Highlights

• $2.3bn Direct Investment by Plan Sponsors Knighthead and Certares
• Knighthead and Certares to Backstop $1.9bn Rights Offering
• Customary No-Shop, Plus 3-5% Break-Up Fee (based on direct investment and backstop commitment)
• Estimated 70% Recovery for General Unsecured Creditors and Unsecured Funded Debt Creditors
• $1.0bn of Exit Financing
• Early to Mid-Summer Emergence

In a press release announcing the "key milestone," the Debtors commented: "The proposed Plan contemplates that Knighthead Capital Management, LLC and its affiliates ('Knighthead') and Certares Opportunities LLC and its affiliates ('Certares') 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 would provide for a new, sustainable capital structure that would substantially 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 would also result in a 70% cash recovery to general unsecured creditors (including the guarantee of the €725 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 Debtors have filed a Backstop Commitment Term Sheet and the Knighthead/Certares Committment Letter and as Exhibits B & C, respectively to the Plan.

Plan Overview

The Disclosure Statement provides: "Specific efforts toward a plan began in November of 2020, when the Company held a series of meetings with various constituents and potential plan sponsors to jump-start a competitive process. The Company also established a data room and conducted a series of diligence meetings with several potential plan sponsors. Eventually, the Company received three credible plan proposals. The Company entered into vigorous negotiations with each of the three potential sponsor groups. The negotiations involved the exchange of various term sheets and other documents and numerous virtual meetings between the Company, potential plan sponsors and their respective representatives. Ultimately, the Company determined that the proposal set forth in the Plan and supported by the Plan Sponsors was the most favorable proposed transaction. The Debtors filed the Plan after obtaining certain commitments from the Plan Sponsors, which remain subject to certain diligence, documentation, and other conditions.

The Plan implies a total enterprise value of approximately $4.846 billion, which is reflected through the issuance of new first lien debt and the sale of new common stock of Hertz Global Holdings, Inc., the parent corporation of the Debtors. The new common stock of Hertz Parent is referred to in the Plan as the Reorganized Hertz Parent Interests. Under the Plan, the existing equity of Hertz Parent will be extinguished and the Plan Sponsors will acquire at least 51% of the Reorganized Hertz Parent Interests from a combination of a direct investment and the exercise of subscription rights under the Rights Offering conducted pursuant to the Plan. The remaining Reorganized Hertz Parent Interests will be made available to the holders of Unsecured Funded Debt Claims pursuant to the Rights Offering under certain procedures subject to approval by the Bankruptcy Court. The Rights Offering will be fully backstopped by the Backstop Parties, which include the Plan Sponsors, with no backstop fee but subject to a breakup fee [3-5% of combined direct investment and rights offering backstop] . The Plan also provides for the Debtors to obtain exit financing to fund Plan distributions and working capital.

The transactions set forth in the Plan will raise approximately $5.253 billion in cash proceeds as follows:

• $2.283 billion, subject to certain adjustments, from the purchase of Reorganized Hertz Parent Interests by the Plan Sponsors through a direct investment;
• $1.970 billion, subject to certain adjustments, from a Rights Offering in respect of the Reorganized Hertz Parent Interests. The Rights Offering will be offered to holders of Unsecured Funded Debt Claims subject to certain subscription procedures and will be fully backstopped by the Backstop Parties; and
• $1.000 billion from exit financing in the form of a secured term loan.

The funds generated by these transactions will be used, in part, to provide distributions to creditors as follows:

• Payment in full of Administrative Claims, including all amounts due in respect of the Debtors’ DIP Financing, cure costs arising from the assumption of Executory Contracts and Unexpired Leases, and accrued and unpaid professional fees;
• Payment in full of Claims arising from the Debtors’ prepetition first lien facilities;
• Payment in full of Claims arising under the Debtors’ prepetition second lien notes;
• Payment in full of Other Secured Claims and Claims entitled to priority under section 503(b)(9) of the Bankruptcy Code; and
• Distributions to holders of Unsecured Funded Debt Claims (including the Debtors’ guarantee of the HHN Notes) and General Unsecured Claims of a cash payment estimated to be equal to approximately 70% of the allowed amount of such claims.

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement; see also the Liquidation Analysis below):

NB: Each class applies to each Debtor except for (i) classes 3, 4 and 5 which apply to Hertz Corp., the Subsidiary Guarantors, and Rental Car Intermediate Holdings, LLC; and (ii) class 11 which applies only to Hertz Parent. Also recoveries are based on a total enterprise value of $4.846bn for the Debtors, together with their non-Debtor subsidiaries.

• Class 1 (“Other Priority Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan.
• Class 2 (“Other Secured Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan.
• Class 3 (“First Lien Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan.
• Class 4 (“Second Lien Note Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. 
• Class 5 (“Unsecured Funded  Debt Claims”) is impaired and entitled to vote on the Plan. Estimated claims are $3.49bn (plus the amount of letters of credit drawn with respect to the ALOC Facility on the Effective Date) and estimated recovery is 70%. Each Holder of an Allowed Unsecured Funded Debt Claims against Hertz Corp. and the Subsidiary Guarantors shall receive its Pro Rata share of: (i) the Unsecured Funded Debt Cash Amount; and (ii) Subscription Rights.
• Class 6 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. Estimated claims are $545.0mn and estimated recovery is 70%.  Each Holder of an Allowed General Unsecured Claim against a Debtor shall receive, subject to the General Unsecured Elective Claim election, its Pro Rata share of the General Unsecured Recovery Cash Pool Amount without regard to the particular Debtor against which such Claim is Allowed.
• Class 7 (“General Unsecured Elective Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan.
• Class 8 (“Prepetition Intercompany Claims”) is unimpaired/impaired, presumed to accept/reject and not entitled to vote on the Plan.
• Class 9 (“Section 510(b) Claims”) is impaired and entitled to vote on the Plan.
• Class 10 (“Intercompany Interests”) is unimpaired, presumed to accept and not entitled to vote on the Plan.
• Class 11 (“Existing Hertz  Parent Equity Interest”) is impaired and entitled to vote on the Plan. Estimated allowed amount is approximately 156 million shares and estimated Recovery is 0%

Key Documents

The following documents were attached to the Disclosure Statement:

• Exhibit A: Plan 
• Exhibit B: Plan Support Agreement 
• Exhibit C: List of Debtors 
• Exhibit D: Debtors’ Organizational Structure 
• Exhibit E: Financial Projections 
• Exhibit F: Liquidation Analysis (to be filed)
• Exhibit G: [RESERVED] 
• Exhibit H: Exit Term Loan Facility Term Sheet (to be filed) 
• Exhibit I: Exit Revolving Credit Facility Term Sheet (to be filed)

Prepetition Indebtedness

As of the Petition date, the Debtors had approximately $19.0 billion in aggregate financial debt incurred through a variety of financing programs with third parties. 

Principal Shareholders at filing (sourced from 2020 Proxy Statement, except GAMCO which is from lead Petition)

• Icahn Associates Holdings LLC: 38.9%
• Dimensional Fund Advisors LP: 8.40%
• Renaissance Technologies, LLC: 6.79%
• PAR Investment Partners, L.P.: 6.35%
• GAMCO Investors, Inc: Over 5%
• The Vanguard Group: 6.34%
• BlackRock, Inc.: 5.37%
• D.E. Shaw Galvanic Portfolios, LLC: 4.63%

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