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A bidding war for the bankrupt car rental group Hertz it will come to an end when rival private equity bidders take part in an auction to be held on Monday in a federal bankruptcy court.
A consortium led by Centerbridge Partners indicated it would counter a recent proposal by another Knighthead Capital-led group that set Hertz’s business value at $ 6.2 million.
This figure would allow current Hertz shareholders to receive a surprisingly generous payback valued above $ 2 per share. The battle for the car rental company comes as the travel and the leisure industries are recovering rapidly as vaccination rates soar and the U.S. economy gains strength.
The blows exchanged between the two bidding groups began in March when Hertz accepted an offer from Knighthead and its partners Certares Opportunities who valued the company at just $ 4.8 million. This offer was surpassed in April by the Centerbridge Group, which includes Warburg Pincus and Dundon Capital Partners.
On Wednesday, the Hertz board determined that Knighthead’s offer received last week constituted a “superior proposal.” The bidding procedures set by the Delaware Bankruptcy Court have allowed Centerbridge to start the auction on Monday.
The first offers from the two groups included junior bondholders who received equity from the new company, while existing shareholders would be eliminated.
A hedge fund group accumulating Hertz shares argued that the company’s valuation was large enough to support at least a modest recovery from current shareholders. Since then, this group has joined forces with Knighthead / Certares along with Apollo Global Management to lead a $ 7 billion package in new debt and equity to reorganize Hertz.
His proposal offers a 50-cent cash payback to current Hertz shareholders and allows them to buy shares in new Hertz shares, either through a rights offer or through warrants. The group has set the value of this package at about $ 2.25 per share, according to someone familiar with the matter.
Hertz shares rose last summer to more than $ 5 thanks to the strength of retailers using the Robinhood app. However, experts scoffed at the fact that since subordinate creditors would receive less than $ 100 cents in the restructuring, even lower-ranking shareholders would be entitled to nothing.
The Knighthead plan collects enough cash to pay all creditors as well as make cash payments to shareholders. Hertz shares have risen to $ 3.48 from this year’s low of 66 cents, implying a current market capitalization of more than $ 500 million.
The insolvency court must approve the successful bidder, which will be followed by a vote on the plan by the Hertz plaintiffs. The company is rushing to reach an agreement and get out of the Chapter 11 process in early July, the start of the company’s busiest season.
Favorable conditions in the capital markets have allowed the fever to fight for Hertz.
“I can’t remember a better financing market,” William Derrough, Hertz’s investment banker at Moelis & Co, said in court statements in April.
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