April 14, 2021 – The Debtors filed a Second Modified Second Amended Joint Chapter 11 Plan and a related redline showing changes from the version filed on April 10, 2021 [Docket Nos 3897 and. 3898, respectively].
Most notable amongst changes in this latest iteration of the Plan is the proposed recovery for general unsecureds in Class 7, which has been moderately increased. That class is now set to share a recovery pool comprised of a $448.54mn "General Unsecured Recovery Cash Pool Amount" (this up from $410.24) and the potential proceeds of certain "Specified Causes of Actions" (see further below) with recoveries capped at 82% [up from 75%]. As a result, the Debtors' official committee of unsecured creditors (the "Committee"), which also benefits from a number of drafting changes relating to consultation rights and the appointment/control of the "GUC Oversight Administrator," is now supportive of the Plan.
Up next for the Debtors (who received Plan exclusivity extensions on April 14th), is an April 16th hearing to consider adequacy of the Disclosure Statement. In a filing in advance of that hearing [Docket No. 3924], the Debtors once again asked the Court to brush aside the persistent objections of an Ad Hoc Committee of Shareholders (the “Equity AHG”) who argue that equity is "in the money" and that the Debtors are in fact solvent.
The Debtors argue: "The Equity AHG bases its objection on the unsupported notion that the Debtors are solvent, rendering the Plan unconformable [sic] because it returns no value to the Debtors’ existing equity holders. In addition to providing no evidence to support its solvency claim (and thus conceding that the information in the Disclosure Statement provides adequate disclosure), the Equity AHG ignores that courts have consistently held that valuation disputes are properly resolved only at confirmation and not at the disclosure statement stage."
In urging the Court to allow it to proceed towards Plan solicitation with haste, the Debtors implicitly acknowledge why the Equity AHG is not likely to abandon its efforts. The Debtors continue: "…it remains critical that the Debtors continue to move their plan process forward, and expeditiously. The now ‘hot’ equity and debt markets which have provided the billions of committed financing needed to fund the Debtors’ restructuring may turn ‘cold’ with the passage of time."
Hot equity markets, but not so hot as to leave anything on the table for equity.
Plan Overview
The Debtors' omnibus reply in support of Disclosure Statement approval [Docket No. 3924] provides a useful, up-to-the-minute summary: "Since filing their initial chapter 11 plan and disclosure statement more than a month ago, the Debtors and their professionals have continued to work to develop, build consensus around, and enhance a plan that maximizes value. As a result, the Debtors are now poised to commence solicitation (and are seeking this Court’s authority to do so) of an amended plan that is supported by the Official Committee of Unsecured Creditors (the ‘Committee’) and incorporates a fully committed proposal to invest $2.57 billion of equity capital by Centerbridge Partners, L.P., Warburg Pincus LLC, Dundon Capital Partners, LLC, and an ad hoc group of holders of more than 85% of the Debtors’ Unsecured Funded Debt (together, the ‘Plan Sponsors’). The Plan would pay senior claims in full, deliver substantial cash recoveries to the Debtors’ general unsecured creditors, and provide the Debtors’ unsecured debtholders with common equity in the Reorganized Debtors and Subscription Rights to purchase additional common equity. The Debtors would emerge from Chapter 11 with a significantly delivered balance sheet, including no corporate debt on their European businesses and $1.3 billion of corporate term loan debt, and a new ABS facility to fund the purchase of new vehicles for use in their U.S. rental car business.
The Plan and the widespread consensus support for it are products of an open marketing process in which the Debtors have dealt with all interested parties. As is evident from the change in proposed sponsorship since the initial version of the Plan was filed, the Debtors have not 'played favorites,” and instead have successfully pushed potential sponsors to deliver the best proposals possible. With all of that said, it remains critical that the Debtors continue to move their plan process forward, and expeditiously. The now “hot” equity and debt markets which have provided the billions of committed financing needed to fund the Debtors’ restructuring may turn “cold” with the passage of time. Furthermore, the Debtors must continue to build momentum to exit chapter 11 during the busy summer season and avoid a potential loss in value that could occur through an extension of these Chapter 11 Cases. Indeed, although the Debtors have successfully worked to build value using the tools of chapter 11, delays in emergence may negatively impact the Debtors’ bookings, harm the Debtors’ customer and vendor relationships, and interfere with the Company’s ability to acquire necessary fleet for 2022. The Debtors therefore remain focused on a targeted June exit from chapter 11."
The following is an updated summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement; see changes in bold; See also the Liquidation Analysis below):
- Class 1 (“Other Priority Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The expected recovery is 100%.
- Class 2 (“Other Secured Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $1.0mn and expected recovery is 100%.
- Class 3 (“First Lien Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $1.27bn and expected recovery is less than 100%. On the Effective Date, each Holder of an Allowed First Lien Claim shall receive payment in full, in Cash, of the unpaid portion of its liquidated Allowed First Lien Claim on the Effective Date and with respect to any unliquidated Claim with respect to undrawn letters of credit shall retain all legal and equitable rights with respect to such Claims until such letters of credit are released.
- Class 4 (“Second Lien Note Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $363.0mn (plus all accrued and unpaid interest (including interest accruing after the Petition Date) and recovery is 100%. On the Effective Date, each Holder of an allowed Second Lien Note Claim shall receive payment in full, in Cash of the Allowed amount of such Claim against Hertz Corp. and the Subsidiary Guarantors. For the avoidance of doubt, the Debtors do not believe that payment of default interest on Second Lien Note Claims is necessary to render such Claims Unimpaired.
- Class 5 (“Unsecured Funded Debt Claims”) is impaired and entitled to vote on the Plan. The estimated amount of claims is $2.75 billion (plus the amount of letters of credit drawn with respect to the ALOC Facility on the Effective Date) and estimated recovery is 75% (plus the value of the Subscription Rights) (based on a common equity valuation of approximately as of the Effective Date of $4.525 billion). Each Holder of an Allowed Unsecured Funded Debt Claim against Hertz Corp., the Subsidiary Guarantors, and, as applicable, Rental Car Intermediate Holdings, LLC, shall receive: (i) its Pro Rata share of the Unsecured Funded Debt Equity Allocation; and (ii) its Pro Rata share of the Subscription Rights.
- Class 6 (“HHN Notes Guarantee Claims,” which consists of all HHN Notes Guarantee Claims against (i) Hertz Corp.; (ii) the Subsidiary Guarantors; and (iii) Rental Car Intermediate Holdings, LLC.) is unimpaired, presumed to accept and not entitled to vote on the Plan. Estimated claims are $790.0mn (plus any accrued and outstanding interest, premiums, and fees from the Petition Date through the Effective Date, solely to the extent necessary to render the HHN Notes Guarantee Claims Unimpaired) and estimated recovery is 100%. Each Holder of an HHN Notes Guarantee Claim against Hertz Corp. and the Subsidiary Guarantors will receive payment in full in Cash of the Allowed amount of such Claim against Hertz Corp., the Subsidiary Guarantors, and Rental Car Intermediate Holdings, LLC. For the avoidance of doubt, the Debtors do not believe that payment of post-petition interest on the HHN Notes Guarantee Claims is necessary to render such Claims unimpaired.
- Class 7 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. Estimated claims are $547.0mn. Each Holder of an Allowed General Unsecured Claim against a Debtor shall receive its Pro Rata share of the General Unsecured Recovery Cash Pool Amount [this combining the $448.54mn "General Unsecured Recovery Cash Pool Amount" with any recovery from the "Specified Causes of Actions"] without regard to the particular Debtor against which such Claim is Allowed; provided, that, no Holder of an Allowed General Unsecured Claim shall receive a recovery that exceeds eighty-two (82%) [up from 75%] percent of the Allowed amount of its General Unsecured Claim.
- “General Unsecured Recovery Cash Pool Amount” means "Cash in the amount of $448.54mn [up from $410.25mn] to be distributed in accordance with Article IV.J, to fund distributions to Holders of Allowed General Unsecured Claims."
- “Specified Causes of Action” means the following Causes of Action: (i)The Hertz Corporation v. Accenture LLP, Case No. 19-3508 (S.D.N.Y.); (ii) The Hertz Corporation v. Frissora et al., Case No. 2:19-cv-08927 (D.N.J.); (iii) Hertz Global Holdings, Inc. v. National Union Fire Insurance of Pittsburgh and U.S. Specialty Insurance Company, Case No. 19-06957 (S.D.N.Y.); and (iv) all Claims and Causes of Action against any Specified Prepetition KERP Participants solely with respect to amounts owed pursuant to the Prepetition KERP Program.
- Class 8 (“Prepetition Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan.
- Class 9 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 10 (“Intercompany Interests”) is unimpaired, deemed to accept/reject and not entitled to vote on the Plan.
- Class 11 (“Existing Hertz Parent Interest”) is impaired, deemed to reject and not entitled to vote on the Plan. Estimated existing interests are approximately 156 million shares and estimated recovery is 0%.
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