Category Archives: Bankruptcy

A Hertz car rental location in Silver Spring, Md. Kristoffer Tripplaar/Sipa USA via AP

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Hertz Global Holdings is set to emerge from bankruptcy this week at a perfect time. And shareholders stand to gain.

The rental-car industry is capitalizing on both a domestic travel surge and a vehicle shortage this summer to raise prices. Vacationers are paying $275 a day or more for midsize sport utility vehicles from Hertz in popular locations and $100-a-day rentals are common, double what Hertz was getting in the first quarter. Used-car prices, meanwhile, have surged, benefiting the industry when they sell their fleets.

The rental-car market is on fire, and the companies have found pricing discipline, says Hamzah Mazari, an analyst at Jefferies. What used to be a dysfunctional oligopoly is now functional. Hertz (ticker: HTZGQ), Avis Budget Group (CAR), and privately owned Enterprise control about 95% of the domestic market.

The way to play Hertz is through its current stock, which has nearly doubled, to $7.15, since mid-May. Thats when a group led by Knighthead Capital Management, Certares Management, and Apollo Global Management (APO) won a bidding contest in bankruptcy court for the company. More upside is likely after Hertz exits bankruptcyexpected on June 30, with the new stock trading the next day. Hertz will emerge with little or no net corporate debt, while Avis has about $3.5 billion.

E=Estimate. Ebitda=earnings before interest, taxes, depreciation, and amortization.

Sources: Barron's calculations; company reports

Sources: Barron's calculations; company reports

Our plan for Hertz is to invest heavily in modernizing the companys technology and improving the customer experience, Greg OHara, senior managing director and founder of Certares, tells Barrons. Along with a right-sized capital structure and favorable economic tailwinds, we can turn Hertzwhich has always had a strong brandinto a stronger company, as well.

Andy Taylor, managing director at Carronade Capital Management, another firm involved in the restructuring, says, Its hard to overstate how well positioned Hertz is coming out of this restructuring. Hertz will emerge with the healthiest balance sheet in the rental-car sector into an unprecedented demand and pricing environment, which should persist through the second half of 2022, given that the industry cant increase supply due to a 50-year low in auto inventory.

Current Hertz shares are due to be exchanged for a package consisting of $1.53 a share in cash, 3% of the stock in the reorganized company, and warrantsa long-term call optionfor 18% of the new, postbankruptcy company. Holders of the current Hertz shares could realize $10 to $12 a share, Taylor says.

The initial trading in new Hertz stock could begin at $13.80, valuing it at $6.5 billion based on about 472 million shares outstanding. There is also $1.5 billion of preferred stock held by Apollo.

Assume no net debt and Hertz is valued at about nine times projected 2023 earnings before interest, taxes, depreciation, and amortization, or Ebitda, of $859 million. This projection was made by Hertz management in April and could prove conservative given the strong industry trends.

Many investors are confused by the package of securities that Hertz holders will get. As noted, holders will get $1.53 a share in cash, new stock, and warrants for each current Hertz share. The stock portion could be worth about $1.25 for a current Hertz share, based on the estimated issuance to Hertz holders of 14 million new shares, or nearly one-10th of a new share for each current Hertz share.

Current Hertz holders are expected to get nearly two-thirds of a warrant for each share with a strike price of $6.5 billion of new equity value, or $13.80 a share based on the new stock. The warrant is expected to account for the bulk of the package value.

The warrants are tricky to value. Their maturity of 30 yearsmost warrants mature in less than 10 yearsmakes them valuable. Based on option pricing models, each could trade around $8, assuming a stock price of $14, meaning that holders would get roughly $5 in warrant value.

Using these assumptions, the package of cash, stock, and warrants could be worth about $8 per current Hertz share: $1.53 a share in cash, $1.25 in stock, and $5 of warrantsa premium to the current stock price. If new Hertz gains, there would be additional upside. The risk is a lower price on the new stock and warrants.

The biggest risk that investors face is if the industrys discipline crumbles when the car shortage eases. Yet Hertz and Avis cut their fleets in the pandemic and have been slow to rebuild them as auto makers prioritize sales of vehicles to dealers. Hertzs U.S. fleet stood at 292,000 on March 31, down from 519,000 a year earlier.

One potential spark for Hertz would be a deal to sell cars to a large used-car retailer. There has been talk about a possible deal between Hertz and Carvana (CVNA), which would help Hertz on used-car sales and give Carvana a regular supply of vehicles. Carvana and Hertz did not respond to requests for comment.

Like its old ad slogan, Hertz puts investors in the drivers seat in a rapidly improving industry.

Write to Andrew Bary at andrew.bary@barrons.com

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Hertz Is About to Exit Bankruptcy. Why Its Stock Is a Buy. - Barron's

The application of sovereign immunity principles in bankruptcy cases has vexed the courts for decades. The U.S. Supreme Courts opinions on the matter have not helped much. Although they have addressed the issue in specific contexts, they have not established clear guidelines that the lower courts may apply more generally. The Third Circuit took a crack at clarifying this muddy but important area of the law in the case of Venoco LLC (with its affiliated debtors, the Debtors).

Background

The Debtors operated off-shore and on-shore drilling operations. As a result of environmental issues, they abandoned certain of their off-shore operations. Invoking its police powers, the California Land Commission (the Commission) ultimately took over the relevant off-shore facility at issue in the case.

After a chapter 11 plan was confirmed, the liquidating trustee (the Trustee) sued the Commission and the State of California (together California) for inverse condemnation in taking over the off-shore facility, seeking just compensation for its value. California moved to dismiss based on sovereign immunity. The bankruptcy court denied the motion and the district court affirmed.

Sovereign Immunity Prior to Katz

In Central Virginia Community College v. Katz, 546 U.S. 356 (2006), the Supreme Court held that, by ratifying the Constitution, the States waived their sovereign immunity with respect to matters characteristically fundamental to the administration of the bankruptcy process, particularly those that implicate the bankruptcy courts exercise of its in rem jurisdiction over the estate, the status of the debtor, and distributions to creditors. What has proven hard to quantify is exactly what that includes. Katz itself involved a preference action, so that much is certain. But what else?

Prior to Katz, courts in bankruptcy cases focused their sovereign immunity analysis on the meaning and proper scope of section 106 of the Bankruptcy Code. Section 106 purports to abrogate sovereign immunity in bankruptcy cases with respect to matters identified in the section. Granting certiorari in Tennessee Student Assistance Corp. v. Hood, 541 U.S. 440 (2004) to review a circuit split on the constitutionality of section 106, the Supreme Court essentially ducked the issue. It determined that it did not have to decide the constitutionality of the provision because, at least with respect to disputes regarding the debtors discharge, principles of sovereign immunity simply did not apply. The Court reasoned that such matters involved the in rem status of the debtor, rather than a claim against a state entity, and so fall outside the scope of the Eleventh Amendment.

Third Circuits Framework for Applying Katz

Katz did not define with precision the kinds of proceedings or issues that may be resolved in bankruptcy without violating principles of sovereign immunity. According to the Third Circuit in Venoco, however, the relevant types may be described functionally: those involving (i) exercise of exclusive jurisdiction over property of the estate, (ii) equitable distribution among creditors and (iii) the discharge of debts enabling a debtor to obtain a fresh start.

This framework requires courts to examine the function of the proceeding to determine whether a particular matter is exempt from sovereign immunity concerns. The first category concerns proceedings that affect property of the debtor or the estate, i.e., affect the res. Applying this part of the analysis, courts have found that states lack sovereign immunity in turnover actions, preference and fraudulent transfer matters, and contract disputes.

The second category involves matters that bear on the equitable distribution of the estate to creditors. Courts have held that violations of the automatic stay impact this function.

The third category simply encompasses the Courts analysis in Hood, determining that States are bound by the bankruptcy discharge, whether or not they chose to participate in the bankruptcy case.

Application of the Framework

Applying the foregoing framework to the Trustees inverse condemnation claim, the Third Circuit found that it implicated two of the three relevant functions. First, it involved property of the estate the off-shore facility at issue and the estates rights therein. While the Trustee sought a money judgement for the value of the facility, the form of judgement is not controlling; it is the substance that counts.

Second, the claim implicated the equitable distribution of the Debtors property. In support of its analysis, the Third Circuit cited references in prior proceedings in the bankruptcy court in which the parties acknowledged the significant value of the off-shore facility. And it noted that California filed a large claim in the bankruptcy case. If California were allowed to recover on its claim but avoid scrutiny over its actions regarding property of the estate, it would improve its position versus other creditors, thus impacting equitable distribution.

Finally, the Court rejected Californias argument that the bankruptcy courts in rem jurisdiction ended on the effective date of the Debtors chapter 11 plan on the theory that the relevant res ceased to be property of the estate at that time. The Court held that the bankruptcy courts in rem jurisdiction did not end on the plans effective date because the trust remained in existence and its primary function was to facilitate the equitable distribution of the value of the estates property to creditors.

California State Law Immunity Rejected as well

As a backup to its Eleventh Amendment claim, California also attempted to assert sovereign immunity under its own state constitution. The Third Circuit rejected this theory on two basic grounds. First, it rejected the argument because it has not been raised in the bankruptcy court and was therefore waived. Second, the Third Circuit observed that, because California was not immune from suit in its own courts, the issue was not one of immunity, but of forum selection.

Conclusion

The Third Circuits opinion in Venoco helps illuminate the rather murky area of sovereign immunity in bankruptcy proceedings. Whether it is adopted by courts outside of the Third Circuit, and whether the Supreme Court ultimately endorses its approach, remain to be seen.

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The Third Circuit Seeks to Clarify Sovereign Immunity in Bankruptcy - JD Supra

Actor Kabir Bedi, reflecting on a 'traumatic' chapter in his life when he went bankrupt, has said that it was 'very humiliating'. The actor recently released his autobiography, titled Stories I Must Tell: The Emotional Journey of an Actor.

In the book, Kabir Bedi writes about his youth, his career in journalism, and his subsequent move to the film industry. Kabir also worked in Hollywood and saw the greatest professional success as a star in Europe, particularly Italy.

In an interview with Brut India, he was asked if his spirituality gave him the strength to overcome life's difficulties. He said, "I went through traumatic experiences with my son's suicide, with my bankruptcy in Hollywood. It's very humiliating for a celebrity to be bankrupted. But you have to find ways of rising, and resurrecting yourself."

He continued, "All through my life, I've reinvented myself. A lot of the meditation I learned in my you, a lot of the spiritual underpinnings my parents gave me through their remarkable traditions of Sikhism and Buddhism, and my own inner sense of self gave me the strength to say, 'no, I will fight back'."

During his Hollywood years, Kabir appeared in The Bold and the Beautiful, one of the most-watched shows in the world. He also appeared in Dynasty, Murder, She Wrote, Magnum, PI, Hunter, Knight Rider and Highlander: The Series.

Some of the most difficult subjects that Kabir wrote about in his book include the death of his son Siddharth to suicide, and his relationship with actor Parveen Babi, who suffered mental illnesses herself.

Also read: Kabir Bedi reveals how he ended open marriage with Protima Gupta to be with Parveen Babi: 'She burst out crying'

Parveen died in 2005 after suffering a multiple organ failure. Writing about her death, Kabir wrote, "In the end, I learned how Parveen had died. Her body was found in her Juhu flat four days after she died, a leg rotted by gangrene, a wheelchair by her bed. A lonely and tragic end of a star who had once been the fantasy of millions. Three men who had known and loved her Mahesh, Danny and I came for her funeral at the Muslim cemetery in Juhu. It was a solemn burial with Islamic rites and chants. We carried her body with relatives to a dimly lit grave. I felt for all she had suffered with a sorrow that came from my depths. Each of us had known her in ways not many knew. Each of us had loved her as only each one knew."

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Kabir Bedi reflects on his 'bankruptcy' in Hollywood, says it was 'very humiliating' - Hindustan Times

by: Paul Thompson/Austin Business Journal

AUSTIN (Austin Business Journal) Last December marked an all-time low for Alamo Drafthouse Cinema LLC.

Revenue was essentially nonexistent as the COVID-19 pandemic rushed into another devastating surge. Despite the companys best efforts, executives looked toward the new year and realized they wouldnt have the funds to make payroll.

We had done our absolute best to make the limited amount of money we had in the bank last, said Alamo Drafthouse founderTim League, now executive chairman of the company he started with wifeKarrie Leaguein 1997.

What we had to do between December and March is we had to reduce our debt, negotiate with the bank, negotiate with landlords, he added. If we were able to hit this benchmark, then we would not go into bankruptcy. And we didnt hit it.

The result: aMarch Chapter 11 bankruptcy filingand a plan to sell substantially all of its assets to a lender group led by Altamont Capital Partners, Fortress Investment Group andTim League.

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Return of the Alamo: How the iconic theater chain emerged from bankruptcy - KXAN.com

DUBAI: The reluctance of Gulf states to hike taxes is among the reasons that the region will remain dependent on hydrocarbons for at least a decade, Moodys said.Gulf states reliance on hydrocarbons will remain the key credit constraint despite ongoing diversification efforts, it saidEconomic diversification away from hydrocarbons remains the most frequently stated policy objective in the region but will likely take many years to achieve, said Alexander Perjessy, a senior analyst at Moodys and the author of the report. The announced plans to boost hydrocarbon production capacity and government commitments to zero or very low taxes make it unlikely that heavy reliance on hydrocarbons will diminish significantly in the coming years.

For most Gulf countries, oil and gas still account for at least a fifth of GDP, more than 65 percent of total exports and at least 50 percent of government revenue.Despite ambitious governments plans, diversification efforts since 2014 have yielded only limited results and will be held back by lower oil prices, Moodys warned.While diversification momentum may accelerate, it is likely to be held back by the reduced availability of resources to fund projects as well as intra-GCC competition in a narrow range of sectors.Hydrocarbon revenue, collected in the form of profit taxes, royalties and dividends (paid by the national oil companies), still account for the lions share of government income across the region.Moodys sees this partly as a consequence of GCC governments long-standing commitment to a zero or very low tax environment, which is part of the implicit social contract between the rulers and the citizens but also reflects the desire to incentivize non-oil sector growth and development. it said.It estimates that GCC sovereign states collected non-hydrocarbon tax revenues equivalent, on average, to less than 4 percent of non-shuhydrocarbon GDP in 2019. That compares to an equivalent rate of more than 22 percent for major high-income economies.Moodys said that if oil prices average $55 per barrel (around the middle of its medium range forecast) hydrocarbons would likely remain the single largest contributor to GCC sovereigns GDP and the main source of government revenue over at least the next decade.

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Arabtec Holding and units bankruptcy approved by Dubai court - Arab News

Most bankruptcy attorneys have a basic level of understanding of the how exemptions work. At a very broad level, a claim of exemptions removes property of a consumer debtor (note that business debtors are not afforded exemptions) from the bankruptcy estate and thereby serves as a foundation for the fresh start that bankruptcy is designed to provide.

But I suspect that even seasoned bankruptcy attorneys including myself lack a detailed understanding of many of the nuances of the mechanics of exemptions unless theyve been faced with issues related to the claiming of exemptions. A recent case has prompted a back to the basics look at the mechanics of exemptions.

When a debtor files for bankruptcy, all of the Debtors property becomes property of the bankruptcy estate pursuant to 541(a)(1) and (a)(2). The estate even includes the property that the debtor intends to claim as exempt under 522. See Taylor v. Freeland & Kronz, 503 U.S. 638 (1992). As explained below, the debtors property may then be removed from the estate via the 522 exemption procedure.

Under 522, a Debtor may exempt property by filing a list of property that the Debtor claims is exempt under 522(b). At this time, the property is still considered property of the estate. The property may then only become exempt if the requirements of 522(l) are met. Section 522(l) states:

[t]he debtor shall file a list of property that the debtor claims as exempt under subsection (b) of this section . . . Unless a party in interest objects, the property claimed as exempt on such list is exempt.

Therefore, the propertys exempt status is conditioned on a lack of objection by a party in interest. While 522(l) conditions exemptions on a lack of objection, the section sets no deadline for when a party must object. This deadline is supplied by Fed. R. Bankr. P. 4003(b), which states in relevant part

A party in interest may file an objection to the list of property claimed as exempt only within 30 days after the meeting of creditors held under 341(a) is concluded or within 30 days after any amendment to the list or supplemental schedules is filed, whichever is later.

Rule 4003(b) gives the trustee and creditors 30 days from the conclusion of the initial creditors meeting to object. By negative implication, Rule 4003 indicates that creditors may not object after 30 days unless, within such period, further time is granted by the court. Therefore, if the objection period expires without extension, then property claimed as exempt is exempt. Taylor, 503 U.S. at 642.

Once the property has been made exempt, the property exits the estate and vests in the Debtor. See In re Bell, 225 F.3d 203 (2ndCir. 2000).

The issue that brought these issues to light was a simple motion for relief from stay filed by a mortgage creditor in an individual bankruptcy case. That case had initially been filed as a chapter 11 case, but was subsequently converted to chapter 7. After conversion, the mortgage creditor filed a motion for relief from stay based on the debtors failure to make regular mortgage payments for many months, including the period during which the case was in chapter 11. As a result of ongoning settlement discussionswhich led to numerous continuancesthe motion for relief did not come to a hearing for several months. When the matter was not resolved, the parties proceeded to a hearing on the motion. After hearing the evidence and arguments, the Court determined that the motion for relief was unnecessary based on the courts reasoning that, since the creditor meeting had concluded more than 30 days prior to the hearing, the property at issuethe debtors homestead, which had been claimed as exemptwas no longer property of the estate, and therefore the stay no longer applied to such property. The court therefore held that the motion was moot.

The scenario raises a couple of issues:

Applicability of Stay to Exempted Property

The Courts ruling that the automatic stay no longer applies to exempted property is likely grounded in 11 U.S.C. 362(c)(1), which states that:

The stay of an act against property of the estate under subsection (a) of this section continues until such property is no longer property of the estate;

As we saw above, once exempted, property vests in the debtor and is thereby no longer property of the estate. But is that the end of the story. Said another way, does the fact that property is no longer property of the bankruptcy estate mean that the automatic stay does not apply at all? The provision above only tells us about the stay as it relates to property of the estate. It does not explicitly address issue of the applicability of the automatic stay to property that is merely property of the debtor. A negative implication might be argued, but is that correct?

A closer look at 362(a) reveals a counter point. Section 362(a) is the broad provision that imposes the stay as to a broad range of acts against property. In most cases, the language of the various provisions of 362(a) reference property of the estate. See 11 U.S.C. 362(a)(2), (3), (4). However, 362(a)(5) states that the automatic stay operates as a stay to all entities of any act to create, perfect, or enforce against the property of the debtor. The question then becomes whether the altered language alters the analysis above. Stated simply, does the automatic stay continue to apply to property that has been exempted and thereby removed from the bankruptcy estate?

Although specific reference to 362(a)(5) has not been found in cases related to a motion for relief from stay, at least one case has addressed the issue in the context of the abandonment of property of the estate. In In re Gasprom, 500 B.R. 598 (9th Cir. 2013), a Bankruptcy Appellate Panel of the Ninth Circuit addressed the effect of an abandonment order on the existence of the automatic stay. It found the following:

By operation of law, the August 1, 2012 Abandonment Order only terminated one aspect of the stay, the aspect protecting the Gas Station as property of the estate. Upon abandonment, the Gas Station no longer was property of the estate; title to the Gas Station reverted to Gasprom. See Catalano v. Commr, 279 F.3d 682, 685 (9th Cir.2002). Hence, the aspect of the stay protecting estate property no longerapplied. See 362(c) (1). But the abandonment did not by operation of law terminate the aspect of the stay arising from 362(a)(5), which protects property of the debtor. Absent a ruling by the court granting relief from stay under 362(d) so as to permit foreclosure to occur, 362(a)(5) continued to protect the Gas Station from foreclosure, at least until the bankruptcy court closed Gasproms bankruptcy case on August 16, 2012. See 362(c)(2).

Therefore, Courts do in fact recognize the distinction in language provided by 362(a)(5) addressing property of the debtor as opposed to property of the estate. And based on the analysis in Gasprom, we believe the correct answer is that property removed from the bankruptcy estate by operation of the exemption scheme continues to be protected by the automatic stay under 362(a)(5).

Effect of Conversion

A conversion of a case e.g., from chapter 13 to 7 or from 11 to 7 adds a wrinkle to the analysis above. As noted above, Fed. R. Bankr. P. 4003(b) provides that parties in interest have 30 days from the date of the meeting of creditors held under 341(a). The question arises which meeting of creditors? If the case initiated as one under either chapter 13 or chapter 11, then a meeting of creditors was conducted in conjunction with those initial filings. By operation of 348 of the Bankruptcy Code, conversion from one chapter to another constitutes an order for relief, which triggers a new meeting of creditors under 341.

In a case out of the Second Circuit, In re Bell, 225 F.3d 203 (2nd Cir. 2000), the Court found that, when property had been exempted by an individual in their chapter 11 caseand thereby removed from the estatea subsequent conversion to chapter 7 did not bring that property back into the estate such that parties in interest could contest a claim of exemption.

However, in 2010, Bankruptcy Rule 1019 was amended and now provides in relevant part:

A new time period for filing an objection to a claim of exemptions shall commence under Rule 4003(b) after conversion of a case to chapter 7 unless:

(i) The case was converted to chapter 7 more than one year after the entry of the first order confirming a plan under Chapter 11, 12, or 13; or

(ii) The case was previously pending in chapter 7 and the time to object to a claimed exemption had expired in the original chapter 7 case.

Although not reflected in Bankruptcy Rule 4003 itself, this change implicitly overrules the result in Bell. Therefore, although property may have been previously exempted by way of a lack of objection to exemptions, the amended rule essentially allows parties in interest a second bite at the apple to object to the debtors claimed exemptions when a case originally filed under another chapter of bankruptcy is converted to Chapter 7.

Application

An individual debtors claim of exemptions is subject to a variety of rules that govern both the timing of their claim as well as the timing of objection to such claim. The automatic stay as applied to property exempted, and thereby removed from the bankruptcy case, does not automatically vanish upon exemption of such property. Creditors should be aware of the ongoing protection provided to property of the debtor, as should Debtors seeking to continue to protect such property. Finally, debtors and creditors alike should be aware of the opportunity to revisit a claim of exemptions upon a conversion of a case to Chapter 7.

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Bankruptcy: The Mechanics of Exemptions and Related Issues - JD Supra

The Boy Scouts of America said Friday its hoping to reach a settlement this summer with lawyers representing the bulk of the 84,000 sexual abuse victims who stepped forward to file claims against the organization.

Overnight, the Boy Scouts filed a new proposal with the bankruptcy court in Wilmington, Delaware.

Under the proposal, the Boy Scouts would pay $250 million in cash, property, and other assets to fund a trust for survivors, while local councils would contribute at least $500 million to the trust, with at least $300 million of that in cash.

Both the national organization and the local councils, which are not themselves in bankruptcy, would also contribute their insurance rights to the trust.

In return, the local councils would be protected from any other allegations, the Boy Scouts said in a statement.

A spokesperson for the Boy Scouts told The Post that it hopes the deal will be confirmed this summer and clear the 111-year-old organization to emerge from bankruptcy this fall.

But any proposed settlement is subject to a vote by survivors and requires approval by the bankruptcy court to take effect.

The spokesperson for the Boy Scouts said the latest proposal is the result of intensive mediation with all stakeholders involved in our Chapter 11 case, including the Coalition of Abused Scouts for Justice, which represents a large majority of claimants and other groups.

Lawyers who represent the Coalition of Abused Scouts for Justice declined to comment. And representatives for another group of victims, the Tort Claimants Committee, did not return The Posts request for comment.

The new proposal comes after the Wall Street Journal reported that the Boy Scouts and the lawyers representing most of the victims are close to agreeing to a victim compensation framework.

This amended Plan marks a significant step toward a global resolution of past abuse claims. It incorporates a number of updates following constructive mediation, which we believe will garner significant support for confirmation, the spokesperson for the Boy Scouts said. Importantly, the BSA is hopeful that this Plan, or one very similar to it, will have the support of a supermajority of survivors.

A deal would clear a path out of bankruptcy for the Boy Scouts, which filed for bankruptcy protection in February 2020 amid mounting legal costs from defending itself against lawsuits alleging sexual abuse of boys.

Its the largest bankruptcy case ever filed over childhood abuse, and dwarfs the number of claims made against other organizations, including the Catholic Church.

Reports of sexual misconduct by employees and volunteers have plagued the Boy Scouts for years, but it wasnt until last year that the scope of the allegations became clear in court.

After learning of allegations in Michigan, state Attorney General Dana Nessel announced the first statewide criminal investigation into the Boy Scouts earlier this month.

Even if the Boy Scouts reach a civil settlement with lawyers representing the abuse victims, the organization could face more criminal probes from other states that follow Michigans lead, some legal experts have said.

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Boy Scouts hoping to reach bankruptcy deal with sex-abuse victims this summer - New York Post

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Hertz Global Holdings shares have been rallying amid investor enthusiasm for the rental-car company ahead of its planned emergence from bankruptcy on June 30.

Investors appear to be attracted to Hertz because of strong rental-car pricing, a discounted valuation relative to rival Avis Budget Group (ticker: CAR), and expectations that the company will have greater financial and operational flexibility once it exits bankruptcy.

Hertz shares (HTZGQ) rose 23 cents, or 3%, to $7.91 on Tuesday after hitting a new 52-week high of $8.89. They traded as recently as June 4 at around $6, when Barronswrote favorably on the stock. Hertz now is valued at $1.2 billion based on 156 million shares outstanding.

The stock was up about 10% Monday. The companys reorganization plan was approved by a bankruptcy court last week.

Under that plan, creditors are being paid off in full, and shareholders are getting a package of cash, shares in the reorganized company, and stock warrants that Hertzs financial advisers estimated earlier this year was worth $7.36 a share. Based on investor enthusiasm for the company, the package could be worth considerably more than $7.36 a share.

Shareholders recently had the opportunity to participate in a rights offering to buy new stock or take warrants in the reorganized company. Nearly 90% chose warrants, which was viewed as the more attractive choice based on the projected value of the warrants.

New shares of the reorganized Hertz are expected to begin trading around June 30 with when-issued activity possible earlier. The warrants are expected to start trading around the same time as the stock.

There are expected to be about 470 million of new Hertz shares outstanding. Current stockholders and others had the right to buy stock at $10 a share. An investor group including Knighthead Capital and Certares Management has agreed to buy almost $3 billion of stock, reflecting the enthusiasm among many institutional investors for Hertz.

Based on an estimated equity value for the company of $6.5 billion, that implies a stock price for new Hertz shares of around $14. The warrants are based on a $6.5 billion valuation, meaning an estimated strike price of close to $14.

Current Hertz stockholders will get $1.53 a share in cash, 3% of the stock in the reorganized company, and warrants for 18% of the reorganized company. That may translate into roughly one tenth of a share of new stock and about two-thirds of a warrant per a current Hertz share, Barrons estimates.

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The bulk of the value in the package is in the warrants, which have an unusually long maturity of 30 years. That long maturity should make the warrants valuable and give them a high correlation, or delta, relative to the stock. A $1 change in the stock could mean a 75-cent change in the Hertz warrants, for a delta of 75%. Most warrants mature in 10 years or less.

Investors are excited about rising rental car pricing amid a scarcity of vehicles. The consumer price index report for May released last week showed that rental car prices were up 10% in the month after 14% increases in each of the previous two months. There has been anecdotal evidence of customers paying hundreds of dollars a day for rental cars amid scarcity. This summer could be a blockbuster period for the industry.

Here comes the pricing power was the title of a research note from Morgan Stanley analyst Billy Kovanis on Avis. He notes that the incremental profit on higher pricing is 90%. He lifted his cash flow estimates for Avis for 2021, 2022, and 2023.

He also said that investor money could flow into Hertz stock if it emerged from bankruptcy with a lower valuation than Avis, whose stock has more than doubled this year. Avis shares were off 85 cents on Tuesday, to $90.75. Hertz is expected to emerge from bankruptcy with little or no net debt and a stronger balance sheet than Avis, whose market value is $6.4 billion.

Avis has been the main way to play the rental-car industry. That will change with Hertzs emergence late this month. Avis, Hertz and the private Enterprise dominate the U.S. industry.

Write to andrew.bary@barrons.com

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Hertz Stock Gains as Bankruptcy Exit Nears. Here's Why. - Barron's

John Fareri and Villa BXV (Getty, Facebook/VillaBXV, iStock)

The developer of a Westchester condo project has now filed two bankruptcy petitions in an attempt to avoid paying millions of dollars to his former construction manager.

John Fareri of Fareri Associates, the developer of the 53-unit Villa BXV complex in Bronxville, filed for Chapter 7 bankruptcy in late May on behalf of Gateway Development, an entity that was established to manage construction of the condo complex. Fareri owns a 51 percent stake in Gateway Development, with the remaining share owned by the construction manager, James Carnicelli.

And less than two weeks earlier, Fareri filed a separate Chapter 11 bankruptcy petition on behalf of another entity, Gateway Kensingon, which he created to sponsor the condo complex. Villa BXV was completed in 2017, but the sponsor still owns at least seven units, most of which have been rented.

The bankruptcy filings were prompted by a recent $14.3 million arbitration award that was issued in response to a claim by Carnicelli.

The dispute stems from $6.3 million in tax credits that Fareri received under the state Department of Environmental Conservations brownfield cleanup program for rehabilitating the once-contaminated site that now houses the residential complex.

After Fareri claimed the tax credits in 2018, the state Department of Finance asked for documents to substantiate the claim. His company prepared invoices to show the costs of remediation and condo construction.

But Carnicelli challenged the bills, arguing that they amounted to more than he was paid and that he should receive the difference of millions of dollars. In response, Fareri fired Carnicelli.

Carnicelli then brought the case to the state Supreme Court, requesting arbitration. During that process, Fareri said he was not aware of the gap between the actual costs and the costs spelled out in the invoices. But arbitrators ultimately issued a $14.3 million award, including a $12.7 million payment from Gateway Kensington to Gateway Development. As a 49 percent owner of Gateway Development, Carnicelli would receive more than $6 million.

But with Gateway Kensington petitioning for restructuring under Chapter 11, and Gateway Development seeking to liquidate under Chapter 7, the fate of those millions is now up in the air.

A Fareri Associate spokesperson said in a statement that the Chapter 7 filing aims to move the dispute from the state court to the federal bankruptcy court, which has the experience and expertise to handle complex business matters with the goal of arriving at a favorable resolution. The spokesperson said the filing has no impact on the companys other businesses.

Carnicellis attorney declined to comment, citing pending litigation.

Contact Akiko Matsuda

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Westchester developer files for bankruptcy twice to fight arbitration award - The Real Deal

Alamo Drafthouse has emerged from bankruptcy and is opening five new theaters, the chain announced Tuesday as the box office roars back to life.

As the country moves forward following the unprecedented 2020 pandemic and moviegoers are returning to theaters, Alamo Drafthouse Cinema is excited to announce its continued emergence and growth with the announcement of five new theaters opening this year and next, the company said

It closes out its bankruptcy with the completion of the sale to Altamont Capital Partners, funds managed by affiliates of Fortress Investment Group and Alamo Drafthouse founder Tim League. The news follows the circuits biggest box office weekend since the pandemic began, including a stellar return of the Los Angeles theater that saw sold out shows for all films and all showtimes for the entire holiday weekend from Friday to Monday.

Were so thrilled to be reopening theaters across the country and welcoming back audiences for an unparalleled moviegoing experience with films weve been eagerly awaiting for over a year now, said CEO Shelli Taylor.

Were so grateful to our incredible partners at Altamont and Fortress, who are completely aligned with our vision for Alamo Drafthouses growth. Its incredibly exciting to be back on that path so we can bring the Alamo Drafthouse experience to new locations around the country, including our very first locations in Manhattan, St. Louis, and D.C.

ManhattanThe companys highly anticipated first Manhattan location, Alamo Drafthouse Lower Manhattan, is a 14-screen theater in the Financial District at 28 Liberty, and is expected to open this fall. Alamo Drafthouse Lower Manhattan will be the home of The Press Room, a brand-new museum, letterpress print shop, bar, and event space.

A previously announced Staten Island theater is still in development with the Flying Guillotine, a martial arts-inspired bar in partnership with Wu-Tang Clan founder RZA.

Greater Washington, D.C. areaAlamo Drafthouse also announced two new locations from franchise partners Cojeaux Cinemas.

Alamo Drafthouse D.C., the companys first theater to be located in D.C. proper, is a 9-screen theater located at Bryant Street in northeast Washington, D.C. and expected to open in winter, 2021.

Alamo Drafthouse National Landing is a 9-screen theater in the Crystal City neighborhood of Arlington, Virginia,with an opening planned in spring of 2022. Cojeaux Cinemas operates three other Alamo Drafthouse franchises in Virginia.

St. LouisAlamo Drafthouses first theater in St. Louis is located at the upcoming City Foundry STL development in the citys Midtown district, Alamo Drafthouse St. Louis is a 10-screen theater from franchise partner St. Louis Alamo Movies, expected to open in spring of 2022.

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Alamo Drafthouse Completes Sale: Out Of Bankruptcy And Opening Five New Theaters As Box Office Revives - Deadline