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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].
On April 15th, the Debtors filed a Second Modified Second Revised Disclosure Statement and a related redline showing changes from the version filed on April 9, 2021 [Docket Nos 3929 and. 3936, respectively]. In addition to reflecting the Plan changes described below, the revised Disclosure Statement attaches a commitment letter in respect of proposed exit financing (Exit Term Loan Facility and Exit Revolving Facility) and, in its continuing battle against the "purported" Ad Hoc Committee of Shareholders (the “Equity AHG”), a price history for its equity and debt.
Unsurprisingly perhaps, the Debtors do not turn to the filed charts (bonds trading at par…and even above) or the pesky equity to bolster their arguments, but rather to their valuation analysis and "an open and competitive process for the sale of the equity in the Reorganized Debtors" (albeit a process occuring largely after the Debtors filed for Chapter 11 protection and punctuated by a now infamous attempt to issue $1.0bn of "insolvent" equity after seeking that protection).
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 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.
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 modified Disclosure Statement [Docket No. 3929] now provides (changes in bold): “The Plan is premised on an implied total enterprise value of approximately $5.5 billion. Taking into account $1.3 billion of new first lien debt and the sale of $385 million of new preferred stock, and adding back excess cash (assumed to be about $700 million net of minimum cash at exit), results in an implied Plan value for the common stock of Hertz Global Holdings, Inc., the parent corporation of the Debtors (‘Hertz Parent’), of approximately $4.525 billion (‘Plan Equity Value’). The new preferred stock of Hertz Parent is referred to in the Plan as the Preferred Stock and the new common stock of Hertz Parent is referred to in the Plan as the Reorganized Hertz Parent Common Interests.
Under the Plan, the Reorganized Debtors will issue new Reorganized Hertz Parent Common Interests, as follows (subject to dilution from the Preferred Stock, the issuance of additional shares resulting from increases in ALOC Facility Claims as described in the Rights Offering Procedures and equity reserved or granted under the Management Equity Incentive Plan):
- approximately 48.2% to the Holders of Unsecured Funded Debt Claims, Pro Rata in exchange for such Claims;
- approximately 9.5% to be sold to Dundon for $400 million;
- approximately 2.0% to be sold to Centerbridge for $82.5 million;
- approximately 2.0% to be sold to Warburg Pincus for $82.5 million; and
- the remaining approximately 38.4% of Reorganized Hertz Parent Common Interests will be offered pursuant to the Rights Offering to all Holders of Unsecured Funded Debt Claims, Pro Rata, without regard to whether any such Holder is an ‘accredited investor’ within the meaning of Rule 501 Regulation D under the Securities Act, or (ii) a ‘qualified institutional buyer’ within the meaning of Rule 144A of the securities Act. As part of their agreement to sponsor the Plan, the members of the Ad Hoc Group of Unsecured Noteholders have agreed to exercise the subscription rights provided pursuant to the Plan to purchase Reorganized Hertz Parent Common Interests. The members of the Ad Hoc Group of Unsecured Noteholders have also agreed to purchase any Unsubscribed Shares not purchased by the other Unsecured Funded Debt Holders.
The Plan also provides for the Reorganized Debtors to obtain a $1.3 billion senior secured term loan to fund Plan distributions and a $1.5 billion revolving credit facility to fund their working capital needs.
- The transactions set forth in the Plan will raise approximately $3.873 billion in Cash proceeds:
- $565 million from the purchase of Reorganized Hertz Parent Common Interests by the Plan Sponsors;
- $1,623 million from the purchase of stock pursuant to the Rights Offering, which the Plan Sponsors have committed to ensure is fully funded pursuant to the terms of the EPCA;
- $385 million from the purchase of Preferred Stock by Centerbridge and Warburg Pincus; and
- $1,300 million in proceeds from the Exit Term Loan Facility.
The funds generated by these transactions will be used, in part, to provide the following distributions to creditors:
- 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, Section 503(b)(9) Claims, 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 507(a) of the Bankruptcy Code;
- Payment in full of Claims on account of the Debtors’ guarantee of the HHN Notes; and
- Cash distributions to Holders of General Unsecured Claims in the estimated amount of 82% of the Allowed amount of such Claims.
As noted above, the Holders of Unsecured Funded Debt Claims will receive 48.2% of the Reorganized Hertz Parent Common Interests, as well as certain Subscription Rights. Based on the valuation performed by Moelis & Company LLC, which indicates the midpoint equity value of the Reorganized Debtors at $4.506 billion, Unsecured Funded Debt Holders will receive a recovery of approximately 75% on account of such Claims. The Subscription Rights permit Holders to purchase Pro Rata shares of Reorganized Hertz Parent Common Interests pursuant to the Rights Offering at a per share price based on a 6.7% discount to Plan Equity Value. The PE Sponsors’ commitment to purchase Reorganized Hertz Parent Common Interests is at the same per share price offered to Holders of Unsecured Funded Debt Claims pursuant to the Rights Offering (i.e. a 6.7% discount to Plan Equity Value).
The Debtors will emerge from chapter 11 protection with approximately $2.3 billion in global liquidity (inclusive of capacity under the Exit Revolving Credit Facility) and only $1.3 billion in corporate debt (exclusive of ABS facilities and letters of credit). The Debtors believe that such liquidity is sufficient to fund their operations after emergence and will provide them with the financial strength and flexibility required to successfully execute their business plan.
In addition to the transactions described above, the Plan provides for the refinancing of the Company’s U.S. ABS facilities and the continuation of the Company’s foreign ABS facilities.
Under the Plan, the Debtors will also assume their Collective Bargaining Agreements, assume The Hertz Corporation Account Balance Defined Benefit Pension Plan, and continue to administer and keep in effect the defined benefits plans sponsored by non-Debtor Affiliate Puerto Ricancars, Inc.
Finally, the transactions contemplated by the Plan include the payment in full of the notes issued by non-Debtor Affiliate HHN and an injection of Cash prior to the Effective Date to meet the liquidity needs of the Debtors’ European business. Specifically, as part of their agreement to sponsor the Plan, certain of the Plan Sponsors have agreed to provide an approximately $295 million (or approximately €250 million if denominated in euros) interim facility to fund the European businesses’ immediate cash needs. The Plan provides that such facility will be repaid upon the Effective Date. The Debtors believe that, upon emergence, their European business will be well positioned for success.
The Debtors believe that the Plan accomplishes all of the goals that they sought to achieve by commencing the Chapter 11 Cases. If consummated, the Plan will significantly reduce the Debtors’ leverage, provide the Debtors with sufficient cash to run their businesses, and provide recoveries to unsecured creditors significantly in excess of what creditors would receive in a liquidation of the Debtors if the Plan were not consummated. The Debtors urge all Holders of Claims entitled to vote on the Plan to vote to accept the Plan.”
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 and estimated recovery is 82%. 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%.
Proposed Key Dates:
- Voting Deadline: June 1, 2021
- Plan Objection Deadline: June 1, 2021
- Confirmation Hearing: June 10, 2021
The modified Disclosure Statement [Docket No. 3929] attached the following exhibits:
- Exhibit A: Plan (Filed at Docket No. 3897)
- Exhibit B: List of Debtors
- Exhibit C: Debtors’ Organizational Structure
- Exhibit D: Financial Projections
- Exhibit E: Valuation Analysis
- Exhibit F: Liquidation Analysis
- Exhibit G: Plan Support Agreement
- Exhibit H: Stock Purchase Agreement
- Exhibit I: Rights Offering Procedures
- Exhibit J: Exit Term Loan Facility and Exit Revolving Facility Commitment Letter
- Exhibit K: [Reserved]
- Exhibit L: HVF III Commitment Letter
- Exhibit M: Preferred Stock Term Sheet
- Exhibit N: Price History of Existing Hertz Parent Interests and Unsecured Notes
Liquidation Analysis (See Exhibit F to Disclosure Statement [Docket No. 3929], NB: this is first of four pages with each page beginning (as here) with consolidated group figures and then adding a debtor-by-debtor breakdown)
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