Relevant Documents:
Agenda
Proposed Order
Judge Mary Walrath today approved, with two minor changes, the Hertz debtors’
motion for approval of their selection of the plan sponsor proposal from the group led by Knighthead, Certares and Apollo, supplemental disclosure materials and continuance of the existing plan solicitation process. After filing the new Knighthead-Certares plan and related materials on Wednesday evening, May 12, the debtors filed a further modified version of the
third amended plan yesterday, Thursday, May 13, which simplifies the treatment of Class 7 general unsecured claims to render them unimpaired and therefore no longer entitled to vote.
Continue reading as our Americas Core Credit and EMEA Core Credit teams provide an update on the Hertz bond group intent for argument and request a trial for access to the linked documents as well as our analysis and reporting on hundreds of other stressed, distressed and performing credits.
Rachel Strickland of Willkie Farr, counsel to the
ad hoc bondholder group, raised concerns that led to the two changes to the debtors’ proposed disclosure materials and questioned whether unsecured bonds are truly unimpaired under the plan. Strickland said
the bondholder group intends to “defend vigorously” its argument for “every iota” of asserted claims for postpetition interest at a rate higher than the federal judgment rate, make whole and indenture trustee fees under their indentures at confirmation.
With approval to maintain their existing confirmation timeline, the debtors are headed for a June 10 confirmation hearing, with objections due June 1.
Counsel to the debtors, Tom Lauria of White & Case, began the hearing by walking the court through the plan sponsorship process, terms of the winning bid and various components of the new plan construct including the revised rights offering. In the context of shareholder recoveries foreseen under the plan sponsor agreement, Lauria questioned “how differently this case may have gone” had the debtors been allowed to issue new equity in June 2020 pursuant its
court-approved but
discontinued at-the-market offering in lieu of subsequently obtaining its $1.65 billion debtor-in-possession loan in October 2020. Lauria stated, however, that the competitive auction held this week between the bidding sponsors had ultimately “produced a great result” for the debtors and all their stakeholders. He further highlighted that the change of Class 5 unsecured funded debt claims and Class 7 general unsecured claims to unimpaired classes meant that the debtors would not solicit their approval of the current plan.
Andrew Glenn of Glenn Agre, counsel to the
ad hoc group of shareholders involved in the winning plan sponsorship bid, spoke in favor of the plan and thanked the debtors for their “phenomenal” management of the sponsor auction.
Amy Caton of Kramer Levin, counsel for the official committee of unsecured creditors, noted that the UCC is “in the unusual position” of still being bound via a plan support agreement joinder to support the discarded Centerbridge-Warburg-Dundon sponsor group plan. Caton said that the UCC had requested, but not received, a release from the PSA but anticipated that upon the court’s approval of the motions being heard today, the PSA would terminate and the UCC would be free to express its full views. After quoting a passage from the debtors regarding unimpairment of unsecured creditors under the plan and their belief that selection of the Knighthead plan sponsors was a proper exercise of business judgment, Caton said the UCC “agrees with that assessment.”
Caton said the UCC has “some remaining issues” with the new plan and would look to negotiate with the debtors on those items after termination of the Centerbridge PSA.
The bulk of the hearing was spent on concerns raised by Strickland for the ad hoc bondholder group; this ultimately led to two changes to the debtors’ proposed form of order and supplemental disclosure materials. The primary point of contention was the issue that a bondholder desiring to participate in the revised rights offering would be required to waive and release claims to make whole amounts and contract or default rate postpetition interest - the very claims that Strickland noted the ad hoc group intends to contest at confirmation. Judge Walrath ultimately disagreed with Strickland’s contention that the issue was a substantive, rather than disclosure, issue improperly presented on minimal notice.
After argument from the debtors, the bondholder group and a final comment from the UCC, Judge Walrath directed the debtors to add additional disclosure that the waiver and release would be irrevocable at the time of the bondholder’s election, regardless of whether any residual unsubscribed rights are later available to bondholders.
Several additional parties raised reservation of rights issues at today’s hearing. Richard Pedone of Nixon Peabody, counsel to unsecured notes indenture trustee U.S. Bank, made a brief appearance to confirm that the indenture trustee was not waiving any rights to challenge the debtors’ determinations on whether to reinstate or pay in full in cash unsecured claims. Pedone took issue with the lack of disclosure regarding that determination process.
Counsel to shareholder Gamco, Andrew Entwistle of Entwistle & Cappucci, made a brief appearance highlighting his client’s
reservation of rights to object at confirmation to third-party releases of any potential federal securities law claims. John Demmy of Saul Ewing, counsel to a group of retired Hertz executives that filed a brief
reservation of rights, sought clarity as to whether the debtors intend to reinstate or pay in cash his clients’ claims.