Hertz Loses Supreme Court Bid Over Bankruptcy Payments
Justices Decline Review of Decision Favoring Bondholders
Key Takeaways:
- The U.S. Supreme Court on Jan. 12 declined to hear Hertz’s appeal, leaving a ruling that requires the company to pay more than $320 million to bondholders.
- The decision upholds a 2024 appeals court finding that Hertz owed make-whole premiums and higher contract interest because it emerged solvent from its COVID-era bankruptcy.
- Hertz said it had accrued about $334 million for the litigation, and its shares fell as much as 4.4% after the court’s action.
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The U.S. Supreme Court turned away a bid by Hertz Global Holdings Inc. to avoid more than $320 million in payments to bondholders tied to its COVID-era bankruptcy, leaving in place a ruling that favored creditors.
The justices on Jan. 12 let stand a federal appeals court decision requiring Hertz to pay so-called make-whole premiums, along with interest at a rate higher than the company argued is allowed under federal bankruptcy law. The Trump administration had urged the court to reject Hertz’s appeal, with U.S. Solicitor General D. John Sauer telling the justices that the lower court reached the correct result. Hertz shares fell as much as 4.4% to $5.41 Jan. 12.
The 3rd U.S. Court of Appeals ruled in 2024 that the car-rental company owes the payments because it emerged solvent from Chapter 11. While Hertz repaid bonds maturing from 2022 to 2028, it declined to include make-whole payments — meant to compensate lenders for lost profits when debt is repaid early — and used a lower federal rate to calculate post-bankruptcy interest instead of the higher contract default rate.
Hertz’s position would lead to paying noteholders “a fraction of the interest they were contractually promised,” while distributing more than a billion dollars to shareholders, the 3rd Circuit wrote in its 2024 ruling.
Hertz filed for bankruptcy in 2020 after the COVID-19 pandemic crushed demand for car rentals. Its shares continued trading over the counter during the case and drew heavy interest from retail investors making speculative bets during lockdowns. The company returned to the public markets with an initial public offering in late 2021.
After a prolonged slump, Hertz shares gained about 40% last year. The company posted better-than-expected results in its most recent quarter, swinging to an adjusted profit of 12 cents a share from a 68-cent loss a year earlier. Cost cuts across its rental fleet helped offset a decline in revenue during the period. In a recent quarterly filing Hertz said it had accrued about $334 million for the litigation as of the end of September.
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The company had about $5.6 billion of non-vehicle debt, and about $11.7 billion of vehicle debt including asset-backed notes as of the end of September, according to filings. Last year, it received a maturity extension on its $2 billion first-lien loan.
The case is Hertz v. Wells Fargo,.
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