Hertz Holders Demand $188 Million Change of Control Payment

(Bloomberg) -- Some holders of Hertz Global Holdings Inc. warrants are demanding a payout of about five times the current stock price, arguing the company’s debt issuance and share buybacks triggered a change of control event, according to a letter their lawyer sent to the company.

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Paul Hastings, a law firm representing holders of around 11% of the warrants, said in a private letter that Hertz’s buyback of $3.4 billion of common stock and borrowing of $2.2 billion of new debt constituted a recapitalization of the company and equated to a reorganization of its capital stock.

They claim that triggered the change of control clause under the warrants that requires Hertz to redeem the warrants at $20.47 each, based on a pricing model used to estimate the fair value of option contracts.

Hertz has hired law firm Davis Polk & Wardwell, according to the June 6 letter seen by Bloomberg.

“We view this position as frivolous and not supported by the warrant language or market practice,” Hertz said in a statement.

Messages left with Davis Polk and Paul Hastings were not returned.

According to the letter, Hertz bought back 174.8 million shares of its common stock for $3.4 billion in cash from Nov. 2021 through Dec. 31 of last year, and concurrently incurred $2.2 billion of debt capital. The warrant holders used the Black-Scholes model for pricing options to come up with the redemption price.

Paul Hastings said the warrant holders are “amenable to an economic resolution” but are “troubled to learn that the Board apparently has declined even to explore a potential opportunity to resolve a sizable dispute that could yield a massive liability.”

Shares of Hertz closed down 2% Monday at $3.66.

Earlier: Hertz Weighs $700 Million Sale of Secured Debt, Convertibles

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