Hertz Starts $750 Million Debt Sale to Bolster Balance Sheet

(Bloomberg) -- Hertz Global Holdings Inc. is looking to raise $750 million in a two-part junk bond offering as it works to bolster its balance sheet after a misstep on its electric vehicle fleet.

The car rental company is offering $500 million in first-lien secured notes maturing in 2029 and $250 million of second-lien exchangeable notes maturing the same year, according to a statement Thursday. The first-lien notes will yield somewhere in the area of 13%, according to a person with knowledge of the transaction.

Hertz is offering investors an 8% coupon on the second-lien payment-in-kind notes with a conversion price between $6 and $7, other people with knowledge of the matter said. 

JPMorgan Chase & Co. is leading the deal and an investor call will be held at 11 a.m. New York time Thursday, with pricing expected Friday, the person said. JPMorgan declined to comment on the deal and Hertz didn’t immediately respond to a request for comment. 

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Hertz has received anchor orders from CK Amarillo LP — a fund set up by Certares Management and Knighthead Capital Management — and another investor, which have committed to purchase $250 million of the exchangeable notes, according to the company statement. 

Hertz also received a commitment to purchase up to $500 million of the first lien notes, it said.

The company’s 4.625% notes due 2026 declined by as much as 4.75 cents on the dollar to 68.25 cents Thursday according to pricing source Trace, the largest drop on record. S&P Global Ratings cut Hertz’s credit rating to B on Thursday, citing higher debt and interest expenses associated with the new bonds, while Fitch Ratings said it was considering downgrading the company.  

Sounding Out

Bloomberg previously reported that Hertz was sounding out investors on a $500 million senior secured debt financing as well as raising $200 million in convertible bonds.

The company said it plans to use the net proceeds to pay down a portion of its $2 billion committed revolving credit facility.

Hertz also said in a regulatory filing Thursday that it’s accelerating a planned fleet refresh after announcing earlier this year that it would sell a third of its US electric vehicles. The rental company was two-thirds of the way through a planned sale of 30,000 vehicles as of May 31.

The acceleration is moving more non-cash depreciation into near-term periods. In the second quarter, Hertz expects an adjusted corporate loss before interest, taxes, depreciation and amortization of $435 million to $495 million.

--With assistance from Maria Clara Cobo, Gowri Gurumurthy and Amy Or.

(Updates with price talk for second-lien notes in third paragraph and bond movements and ratings in the seventh paragraph. A prior version corrected spelling of company name in first paragraph.)

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