Florida's Hertz Selling $1.5 Billion Bond to Repay Apollo Preferred Stock
Hertz is in the process of cleaning up its balance sheet after emerging from bankruptcy in June and relisting on Nasdaq earlier this month, where the company raised $1.3 billion.
November 17, 2021 at 10:52 AM
3 minute read
Hertz Global Holdings Inc. is selling $1.5 billion of junk bonds to fund the repurchase of some preferred stock that private equity giant Apollo Global Management Inc. provided during the car rental firm's recent bankruptcy.
The company will use proceeds from the debt to "repurchase all or a portion of the outstanding shares of Hertz's Series A preferred stock" with as much as $250 million of any remaining proceeds marked for general corporate purposes, the company said in a statement Wednesday.
Apollo and other unnamed investors provided this $1.5 billion of preferred stock as part of Hertz's emergence from bankruptcy, according to an earlier filing. The car-renter was bought out of Chapter 11 bankruptcy this year by a group led by by Knighthead Capital Management and Certares Management after a dramatic brawl for control of the company.
The bond deal is split into two tranches of $750 million apiece, with a five-year maturity and an eight-year maturity, according to a person with knowledge of the matter who asked not to be named discussing a private transaction. The two tranches cannot be bought back early by the company for two and three years, respectively.
Early pricing discussions on the sale are for a yield of about 5% for the five-year tranche, and a mid-5% yield for the eight-year portion, separate people familiar with the matter said. That's more than the 4.76% average yield for similarly-rated notes. An investor call will be held at 10:30am in New York and the deal is expected to price on Wednesday, the person added.
The preferreds have a high coupon structure so taking them out now will save Hertz significant interest expense. They start with a 9% dividend that steps down over two years to 7% for a cash payment, or 9% if paid-in-kind, but then steps back up to as much as 23% ten years out, according to a report by Bloomberg Intelligence analyst Jody Lurie. To repay them early, the company could pay as much as roughly 130 cents on the dollar, she wrote.
A representative for Barclays Plc, which is leading the deal, declined to comment. A representative for Hertz didn't immediately respond to a request for comment.
Hertz is in the process of cleaning up its balance sheet after emerging from bankruptcy in June and relisting on Nasdaq earlier this month, where the company raised $1.3 billion. The company tapped the leveraged loan market in June for about $1.6 billion to help fund its reorganization plan. Last year, Hertz received a bankruptcy loan from funds including Apollo.
Estero, Florida-based Hertz holds a B long-term issuer rating from S&P Global Ratings, and B3 company rating by Moody's Investors Service, or five and six steps into junk, respectively.
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