Hertz Global Holdings Inc. has been at loggerheads with a key group of creditors with time running out to cut a deal that addresses missed debt payments, according to people with knowledge of the matter.
The deadlock between the car-rental company and creditors, including holders of asset-backed securities tied to fleets of vehicles, comes as some investors have grown more confident they’ll be made whole if Hertz files for bankruptcy and is forced to sell the cars backing their bonds, the people said.
Hertz has until Friday to either extend a forbearance agreement or make around $400 million of lease payments. If no deal can be reached, Hertz may need to seek court protection in the coming days, according to the people. Top shareholder Carl Icahn could still swoop in with a last-minute rescue to protect a $1.6 billion investment, now worth about $170 million as of Thursday’s close, one of the people said.
A representative for Hertz declined to comment. The company’s shares fell as much as 5.2% to $2.91 shortly after the start of regular trading.
Icahn, Apollo
An uptick in used-vehicle prices from dismal levels seen in March and April have given ABS holders less incentive to extend the forbearance period for Hertz a second time, the people said. Back in April, lenders were more willing to be lenient to avoid selling the vehicles backing the ABS into a deeply depressed market.
Prices of used vehicles hit bottom the week ending April 19, down more than 15% from where they were prior to government shutdown orders, according to market researcher J.D. Power. By the end of the first week of May, prices were down less than 10%.
Still, any liquidation scenario does pose a risk to bondholders. Selling off cars quickly can help maximize the value of assets that rapidly depreciate, but flooding the market with too many cars depresses prices.
“Cars aren’t like fine wine; they don’t get better with age,” said Dan Zwirn, chief executive officer of Arena Investors, who has held both debt and equity stakes in auto companies for over 20 years.
Read more: Hertz seeks lender leniency or faces bankruptcy within weeks
Few bondholders expect used-vehicle prices to fall so low that holders of the largest, highest-rated portions of the ABS would take losses. Though Hertz ABS have faced downgrades, any pain from liquidations would likely be felt in smaller, lower-rated slices of the securities, the people said.
Senior slices of Hertz debt issued between 2015 and 2019 changed hands Thursday for between 93.5 and 95 cents on the dollar. A lower-rated portion of a 2015 deal dropped around 19 points to trade at 81 cents, according to Trace.
Any move by Icahn could force him to deal with bondholders like Apollo Global Management Inc., which has been buying Hertz debt at distressed prices after unwinding a short bet it had in the credit-default swaps market.
A representative for Icahn didn’t immediately respond to a request seeking comment, while Apollo declined to comment.
–With assistance from Craig Trudell.
–By Claire Boston, Eliza Ronalds-Hannon and David Welch (Bloomberg)
