ESTERO, Fla. - Hertz (NASDAQ:HTZ) Global Holdings (OTC:HTZGQ), Inc. (NASDAQ: HTZ), a prominent player in the global car rental market, disclosed its intention to issue $750 million in debt through its subsidiary, The Hertz Corporation. The offering, subject to market conditions, includes $500 million of First Lien Senior Secured Notes and $250 million of Exchangeable Senior Second-Lien Secured PIK Notes, both due in 2029.
Investors associated with CK Amarillo LP have committed to purchasing up to $250 million of the Exchangeable Notes, while a backstop commitment for the First Lien Notes has been secured for the same amount. The proceeds are earmarked for reducing Hertz Corp.'s $2.0 billion revolving credit facility to bolster liquidity. The offerings are not interdependent for completion.
The Exchangeable Notes, bearing PIK interest, are set for semi-annual payments starting December 15, 2024, with an initial exchange price potentially double the average stock price on the pricing date, capped between $6.00 and $7.00 per share. The terms, including the interest rate, are under negotiation.
Exchangeability of these notes is subject to specific conditions and time frames, with full exchangeability close to maturity in June 2029. In case of certain 'fundamental changes,' holders can demand repurchase at the initial principal plus accrued PIK interest.
The First Lien Notes and Exchangeable Notes will be guaranteed by Hertz Global Holdings and other domestic subsidiaries, with the former secured by the same collateral as Hertz Corp.'s first lien credit facilities. The Exchangeable Notes will rank junior to the First Lien Notes and other secured indebtedness.
These offerings are accessible only to qualified institutional buyers and, for the Exchangeable Notes, certain non-U.S. persons, in compliance with the Securities Act. They will not be publicly registered in the U.S., limiting their sale within the country without registration or applicable exemptions.
The Hertz Corporation, under Hertz Global Holdings, operates multiple rental brands worldwide and also engages in vehicle sales and car sharing services.
In other recent news, Hertz Global Holdings is contemplating a sale of at least $700 million in secured debt as part of a financial shakeup. The company's new CFO, Scott Haralson, formerly of Spirit Airlines (NYSE:SAVE), is expected to guide this strategy. This comes after Hertz reported a significant quarterly loss of $1.28 per share, exceeding analysts' projected 44-cent loss.
The rental car company also plans to shed approximately 30,000 vehicles due to lackluster demand and high repair costs from its electric vehicle business. In addition to these developments, BofA Securities maintained its Underperform rating on Hertz with a steady price target of $3.00, following a comprehensive liquidity analysis. This evaluation suggests Hertz may face a significant EBITDA loss of about $700 million in 2024.
Moreover, Deutsche Bank (ETR:DBKGn) has cut its price target for Hertz to $4.80 from $6 while maintaining a Hold rating. The bank cites the challenge of balancing growth of pricing and fleet against the need to reduce expenses. Lastly, BofA Securities downgraded Hertz's stock from Neutral to Underperform, and dropped its price target from $9.00 to $3.00, following disappointing first quarter results for 2024.
InvestingPro Insights
In light of Hertz Global Holdings, Inc.'s (NASDAQ: HTZ) recent debt issuance announcement, a closer look at the company's financial health through InvestingPro metrics reveals some challenges and opportunities. Hertz operates with a significant debt burden, which is reflected in its aggressive moves to manage liquidity and reduce reliance on its revolving credit facility. The company's management has been actively buying back shares, a sign of confidence in the company's value despite the financial restructuring.
InvestingPro Data provides a snapshot of the company's valuation and performance. The adjusted market capitalization of Hertz stands at $944.96 million, with a notably low Price / Book multiple of 0.34 for the last twelve months as of Q1 2024. This could indicate that the company's assets are undervalued in the market. Moreover, Hertz's P/E Ratio is at 5.31, which drops to an adjusted 4.04 when considering the last twelve months as of Q1 2024, suggesting that the stock might be trading at a low earnings multiple compared to its earnings capacity.
Despite these potentially attractive valuation metrics, Hertz's financials also show signs of strain, with a revenue growth of 5.4% in the last twelve months as of Q1 2024, and a more modest quarterly revenue growth of 1.61% in Q1 2024. The company's gross profit margin stands at 12.56%, which could be a point of concern when paired with the InvestingPro Tip that Hertz suffers from weak gross profit margins.
For investors looking to delve deeper into Hertz's financial prospects, there are additional InvestingPro Tips available, such as concerns over the company's ability to make interest payments on its debt and the potential for net income to drop this year. With 25 total InvestingPro Tips available, investors can gain a comprehensive understanding of the risks and opportunities associated with Hertz. To access these insights and more, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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