Welcome to the 102nd Pari Passu newsletter. 

Two weeks ago, we celebrated the 100th edition and covered the out-of-court restructuring of Pluralsight, a fascinating blend of private equity turned ugly. Today, we are back with another great restructuring story: Hertz Corporation. 

Incorporated in 1976 and successor to businesses engaged in vehicle rental and leasing as far back as 1918, Hertz is a long-time market leader in the vehicle rental and leasing space. However, with COVID-19 bringing global travel to a standstill, Hertz crashed into bankruptcy court nearly overnight as one of the largest Chapter 11 filings in history. Uproar ensued as Hertz daringly motioned to issue $1bn of equity post-bankruptcy filing in an attempt to take advantage of their inflated stock price.

While experts initially ridiculed equity holders for pumping bankrupt Hertz stock price to over $5 per share, to everyone’s surprise, equity holders experienced positive recoveries of up to $8 per share as sponsors entered a bidding war in attempts to capitalize on Hertz’s business recovery. Creditors, with 100% principal recovery but no interest, subsequently sued on the basis of “absolute priority,” arguing that debt must be paid in full before equity payout. This article explores Hertz’s abrupt pandemic-driven bankruptcy, audacious equity raise, and the legal complications of “make-whole” fees for disgruntled creditors.

It’s a bumpy road through Chapter 11, so buckle in for the ride. [1] Read through the end for yet another resource from the Pari Passu Newsletter!

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Business Overview

Hertz is among the largest vehicle rental companies worldwide, operating globally across the value spectrum through three main brands: Hertz, Dollar, and Thrifty. 

The company reports in two segments: 

• US Rent-A-Car (US RAC): vehicle rentals and value-added services.

• International Rent-A-Car (International RAC): International rental and leasing of vehicles and value-added services. Franchisees and partners operate rental locations in 160 countries. 

It is important to note upfront that Hertz’s business is extremely sensitive to air traffic. Airport revenues comprised ~65% of Hertz’s worldwide vehicle rental revenues in 2019, now up to 66% in 2023.

Hertz’s business model can be summarized into four stages: [1][2]

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