Hertz Approved For Ch. 11 Deal To Sell 182,000 Cars In 2020

By Vince Sullivan
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Law360 (July 24, 2020, 6:32 PM EDT) -- Bankrupt car rental agency Hertz Global Holdings Inc. got the nod from a Delaware judge Friday for a deal with its fleet financing lenders to sell off 182,000 vehicles by the end of the year and pay $650 million in vehicle lease obligations during the same period.

During a hearing over the phone and videoconference, debtor attorney Thomas E. Lauria of White & Case LLP said the deal would put off litigation until at least January over a motion by Hertz to reject the master lease agreement covering nearly 500,000 vehicles that make up a substantial portion of its fleet.

"This agreement establishes an interim peace between the debtor and the vehicle lenders, who at the petition date were owed nearly $11 billion," Lauria said. "The peace, we believe, is an important step in the process of moving the debtors toward a responsible value maximizing reorganization and ultimately an emergence from Chapter 11."

The deal resolves the anticipated dispute over the attempt by Hertz to reject the vehicle leases held by non-debtor affiliate Hertz Vehicle Financing, which itself owes billions to bank lenders for financing the vehicle fleet, according to court filings. Pursuant to the settlement, Hertz has pledged to sell off 182,000 vehicles to raise $4 billion in proceeds that will be sent to HVF to satisfy the lease obligations. The $650 million payments to HVF — payable in six equal monthly installments beginning next week — will cover the rent liabilities for the remaining fleet at a nearly 50% discount through 2020, Lauria said.

Recent changes in the used car market have seen prices rebound after a brief trough, he explained to the court, and will enable Hertz to reliably sell off the vehicles in an efficient and lucrative manner.

U.S. Bankruptcy Judge Mary F. Walrath approved the settlement, saying she likes to see parties work toward consensual resolutions whenever possible.

"I do like to see peace break out. I, too, appreciate that it was a lot more than a little bit of luck and took the efforts of parties working to come up with a deal, like any true settlement," she said. "I will approve the interim settlement and hope that everything gets better with the COVID crisis and this environment by the end of the year."

Hertz sought Chapter 11 protection on May 22, citing a huge downturn in business as the COVID-19 pandemic deeply depressed air travel and other transportation reliant on car rentals. It carried about $20 billion of debt into Chapter 11, with about $14 billion associated with fleet financing obligations.

At the outset of the case, Hertz said its business declined by 75% almost immediately after widespread business and travel restrictions were implemented in March, which torpedoed its anticipated growth. The company had plans to expand its fleet to more than 880,000 vehicles by the summer, but took steps to cancel orders for new vehicles and to return recently acquired vehicles to bring its fleet size back down to about 730,000, debtor attorneys said during a first-day hearing.

Early in 2020, Hertz had about 80% of its fleet in use, which it said was excellent, but that it has no hope of being able to deploy that many vehicles in the near future.

With fleet usage down to 15% in the midst of the pandemic, the company had to find ways to store its massive roster of vehicles and was unable to make rent payments in April or May. The various government shutdowns had frozen the used car market that Hertz routinely used to purge its fleet of older and unused vehicles, and fleet financing obligations mounted to the point that the company was forced to seek bankruptcy protection, it said.

Hertz and its affiliates are represented by Thomas E. Lauria, Matthew C. Brown, J. Christopher Shore, David M. Turetsky, Samuel P. Hershey, Jason N. Zakia, Ronald K Gorsich, Aaron Colodny, Andrew Mackintosh and Doah Kim of White & Case LLP, and Mark D. Collins, Robert J. Stearn Jr., John H. Knight, Brett M. Haywood, Christopher M. DeLillo and J. Zachary Noble of Richards Layton & Finger PA.

--Additional reporting by Jeff Montgomery. Editing by Adam LoBelia.

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