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When a company changes off-route, it is usually the debt investors who jump into the ride. The so-called special situations attract opportunistic “vulture” investors who are not afraid of court or boardroom showdowns. They want to buy cheap dangerous bonds and loans and then go to the driver’s seat.
But Hertz, whose troublesome habit of trading $5 billion debt piles at a tortured level, attracted well-known stock investors.
On Wednesday, a securities application showed Bill Ackman’s Pershing Square Capital Management acquired a 4% stake in Hertz in the second half of 2024. Hertz shares, which traded at $34 per share in the second half of 2021, have fallen to just $3 in recent months.
With a portfolio mainly made up of blue chip companies such as Chipotle, Hilton and Alphabet, Ackman is betting on the fast snapback of the car rental company’s fate. If that happens, of course the debt holder can benefit. But equity slivers – based on company values - will earn you more profits.
Hertz has its shape here. That pandemic-era bankruptcy not only won an entire creditor, but it was even in a pot enough for the company’s pre-producing shareholders to collect $1 billion.
The key dynamic is Hearts’ unstable business model. This doesn’t just depend on rental fees and fleet use. We also bet on the price of used cars. Hertz suffered improper pivots towards electric vehicles, leaving behind dissatisfied customers, high repair costs and $1 billion impairment costs for the fleet. But now, used cars are rising prices. The tariffs on new cars imported by President Trump’s “liberation day” could support the value of existing cars, such as the Hertz fleet.
Still, Hertz appears to be hit quite a bit. The group, managed by private equity firm Knighthead Capital, relies on heavy leverage and company, matures its $700 million in debt next year. They reportedly hired a restructuring advisor, but in many cases, the company’s debt and equity are indications that they are facing obstacles. In addition to that issue, the federal court of appeals found that Hertz owed the Legacy Bondholders $300 million in interest payments that he had not received when Hertz emerged from bankruptcy.
You may also benefit from the price of used cars being retained, but you will also need to purchase new (duty impact) vehicles. Hertz shares rose to more than $7.50 on Wednesday, nearly $4 per share. The volatility Ackman wanted was soon realized.
sujeet.indap@ft.com
