Hertz Global Holdings Inc. unveiled a plan Monday to buy back as much as $2 billion of its stock, a move that would return more capital to investors who stood by the car-rental company through its bankruptcy filing last year.
Hertz shares rose 6% on Monday. The stock has declined since relisting on Nasdaq earlier this month, but is still well above the low levels where it was trading earlier in the pandemic, when Hertzwarned shareholderstheir holdings might go to zero.
The company said that the new buyback program’s first phase will include $200 million of repurchases that were already authorized as part of the relisting.
The rest of the $2 billion program would follow completion of a deal for Hertz to buy back all of its Series A preferred shares. Those shares, mostly owned byApollo Global ManagementInc.,a private-equity firm, were issued as part of efforts to rescue Hertz from bankruptcy as the coronavirus pandemic pummeled its business. Preferred shares give owners priority for dividend payments over owners of common stock.
As travel has rebounded, Hertz has found sounder footing in recent months, with greater revenue and a return to profitability. Its path through the past two years has traced markets’ unpredictable swings from pessimism to optimism and back again as the pandemic delivered investors a steady stream of surprises.
The car-rental firm entered the pandemic bearing high levels of debt. The sudden drop in travel and an initial fall in used-car values during the spring of 2020 led Hertz to file forbankruptcy in May 2020. Shares fell to a session low of 56 cents last spring before individual traders started piling in, buying Hertz stock even though it temporarily appeared that a restructuring could wipe out equity owners.
The New York Stock Exchange suspended trading of Hertz shares last year after the bankruptcy filing, although the stock continued to change hands in over-the-counter markets.
This year, as vaccines and abating pandemic conditions boosted travel demand, the company’sperformance improved. Revenue was $1.91 billion in the September-ended quarter, more than double Hertz’s results for the same period in 2020. Its profit was $605 million, compared with a year-earlier loss.
As that recovery was taking shape, institutional investors led by Apollo, Knighthead Capital Management LLC and Certares Management LLC organized a restructuring deal in May 2021 that brought Hertz out of bankruptcy while keeping shareholders in the money.
Many individual investors who bought shares near their lowsrecorded outsize gains. With Hertz’s plan to buy backApollo’s preferred shares, the private-equity firm stood to notch a 70% annualized return on its role in the restructuring.
New buybacks for common shareholders could add to returns for individual investors and other owners of Hertz shares. Buybacks boost stocks’ value because they remove shares from circulation, leaving remaining shareholders entitled to a larger portion of future profits.
Hertzlisted on the Nasdaqearlier this month, debuting at $29 a share, but its stock has mostly edged lower since.
In the past few days, concerns about thenew Omicron variantof Covid-19 have raised questions about the travel sector’s recovery, with countries adding new restrictions on some international travel to try to keep the strain at bay.
Hertz’s buyback plans come alongside a splashy effort by the company to invest in its fleet of rental cars by addingmore electric vehicles. Last month, Hertz said it had ordered 100,000 cars fromTeslaInc.,although recent back-and-forth between the companies has left it unclear how soon Hertz can expect to receive the cars.
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