Shares of bankrupt car-rental company Hertz Global Holdings Inc. soared 62% in afternoon trade Wednesday, after the company unveiled a plan to help it exit chapter 11 that would benefit shareholders.
said it has selected and approved a $6 billion revised proposal from Knighthead Capital Management LLC, Certares Opportunities LLC and Apollo Capital Management to provide the equity capital needed to fund its reorganization plan. The agreement must be approved by the Bankruptcy Court at a hearing set for Friday.
Under the new proposal, Hertz’s chapter 11 plan will be funded using direct stock investments from the group of $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, Hertz said in a statement.
“The revised plan would provide for the payment in cash in full of all administrative, priority, secured, and unsecured claims in the chapter 11 cases and would deliver significant value to the company’s existing shareholders,” said the statement.
That includes $239 million of cash, common shares equal to 3% of the shares of the reorganized company, 30-year warrants for 18% of the stock of the reorganized company with a strike price based on a total equity value of $6.5 billion or the chance for eligible shareholders to subscribe in the rights offering.
A rival group including Centerbridge Partners, Warburg Pincus LLC, Dundon Capital Partners, LLC and an ad hoc group of the company’s unsecured bondholders were also vying to fund Hertz’s exit from bankruptcy.
“We are very pleased that our plan process produced such a tremendous result for our creditors and shareholders,” Hertz Chief Executive Paul Stone said in a statement.
The news will be welcomed by a group of Reddit investors who bought the stock last year after it filed for bankruptcy, even though that process usually results in the equity being wiped out. The company entered bankruptcy protection in May of 2020, drowning in nearly $20 billion in debt and hit hard by the global restrictions on travel designed to slow the spread of the coronavirus illness COVID-19.
The resulting stock rally led the company to make the highly unusual request to the bankruptcy court to issue up to $500 million worth of new shares, even as it acknowledged in regulatory filing that the stock could become “worthless.” The court initially agreed to let the deal go forward, before the Hertz board decided to abandon the plan.
Hertz shares are up 343% in the year to date.