Hertz Global Holdings Inc. shares swung wildly in the over-the-counter market after the rental-car company formally emerged from bankruptcy and was swiftly sued by bondholders demanding $272 million in premium payments.
Hertz shares resumed trading Thursday under a new ticker, HTZZ, beginning the session at around $22 before climbing as high as $33.80. They erased most of those gains within the first half-hour of trading and were above $26 a share in afternoon trading.
Thursday’s trading action marks the latest bout of volatility for Hertz, a stock once known as a darling among individual investors who frequented online forums like Reddit’s WallStreetBets. Hertz left chapter 11 on Wednesday, emerging from court protection andnaming new directors.
The bankruptcy deal that lifted Hertz out of chapter 11 supplied shareholders with a handsome payout of cash, shares and warrants. Some bondholders bought equity in a bankruptcy rights offering, becoming part-owners of the restructured business. Others that didn’t filed court papers Wednesday demanding premium payments they said they were due.
The lawsuit, filed by Wells Fargo Bank NA on behalf of bondholders it represents, said that Hertz owes make-whole payments—premiums that must be paid under some borrowing arrangements when bonds are retired before their maturity date. Make-whole provisions can be triggered when debt is redeemed or refinanced, requiring that creditors be compensated for the interest they would otherwise have received.
Hertz disputes that any make-whole is due, according to the complaint. The company didn’t respond to a request for comment.
The bondholders said it wouldn’t be fair to deny them premium payments when shareholders received roughly $1 billion in value when Hertz left bankruptcy. The shareholder payout was the result of an intense bidding war that drove up Hertz’s value enough to cover its debts in full andsupply a recovery to equity, a rarity in corporate bankruptcies.
The bondholders had teamed up with a private-equity group to try to take control of Hertz but lost out to investors Knighthead Capital Management LLC and Certares Management LLC, which took a majority stake in the company, along with co-investors.
Bondholders owed roughly $833 million agreed to waive their rights to seek make-whole premiums when they opted to participate in the equity rights offering. Holders of a further $1.867 billion in bonds instead had their principal repaid on Wednesday, and are now seeking to also collect the premium payments.
The bonds are in four tranches that mature in 2022, 2024, 2026 and 2028, and were cashed out well before their maturities.
If the premium payments aren’t approved in court, the bondholders asked, as an alternative, to be paid $128 million in interest dating to Hertz’sMay 2020 bankruptcy petition. Hertz also disputes the post-petition interest claim, according to the complaint.
Hertz was delisted from the New York Stock Exchange in October following a precipitous, monthslong decline that took its stock price near zero. Although the company’s shares managed to regain some ground in the over-the-counter market through the end of the year, they plummeted in March, heading toward zero again, after Hertz unveiled a restructuring proposal that would have wiped out equity, as is typical for companies in chapter 11.
The shares, which at the time traded under the ticker HTZGQ, fell as low as 41 cents in intraday trading March 4, marking their low point this year.
Shortly afterward, however, Hertz mounted an astounding recovery, buoyed by consumers’ eagerness to resume travel as the Covid-19 pandemic showed signs of waning. After competition between investment firms drove up Hertz’s value, sending the stock’s closing price past the $8 mark by the end of June, the company suddenly was able to cover its debts and leave plenty left over for shareholders.
Individual investors, derided by Wall Street veterans last year for piling into a distressed company, were rewarded when Hertz exited bankruptcy.
For now, Hertz shares will continue to trade over the counter.