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When a company has veered off-route, it is usually debt investors that hop in for the ride. So-called special situations attract opportunistic “vulture” investors who are unafraid of courtroom and boardroom showdowns. They buy risky bonds and loans on the cheap, and then hope to end up in the driving seat.
Yet Hertz, which has a troubling habit of falling into financial pot holes and whose $5bn debt pile trades at distressed levels, has attracted a well-known equity investor.
On Wednesday, a securities filing showed that Bill Ackman’s Pershing Square Capital Management had taken a 4 per cent stake in Hertz, sometime in late 2024. He has now boosted that to 20 per cent. Hertz shares, which traded at $34 per share in late 2021, have fallen to as little as $3 in recent months.
Ackman, whose portfolio largely comprises blue-chip companies including Chipotle, Hilton and Alphabet, is betting on a rapid snapback in the rental car company’s fortunes. If that happened, debt holders would stand to benefit of course. But the sliver of equity — a leveraged play on the company’s value — would benefit more.
Hertz has form here. Its pandemic-era bankruptcy not only made creditors whole, but even had enough in the pot for the company’s pre-restructuring shareholders to recover $1bn.
The key dynamic is Hertz’s volatile business model, which does not simply depend on rental rates and fleet utilisation. It is also a bet on used car prices. Hertz has been suffering from an ill-conceived pivot towards electric vehicles, which left it with unsatisfied customers, high repair costs and a $1bn impairment charge on its fleet. Now, however, used car prices have rallied. President Trump’s “liberation day” tariffs on imported new cars may prop up the values of existing cars, such as those in the Hertz fleet.
Still, Hertz looks pretty banged up. The group, controlled by the private equity firm Knighthead Capital, relies on heavy leverage and the company and has $700mn of debt maturing next year. It has reportedly hired restructuring advisers, often a sign that a company’s debt and equity are about to face impairment. Adding to its problems, a federal appeals court ruled that Hertz owed legacy bondholders $300mn in interest payments they failed to receive when Hertz emerged from bankruptcy.
And while Hertz may benefit if used car prices hold up, it also has to buy new — tariff-impacted — vehicles. Hertz shares opened close to $4 per share on Wednesday and between the trading session and after-hours, its stock price rose to more than $7.50. The volatility Ackman seeks has quickly materialised.