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Home / Companies / News /  Hertz targets $2 billion in buybacks amid pandemic recovery

Hertz Global Holdings Inc. unveiled a plan on Monday to buy back as much as $2 billion of its stock, a move that would return more capital to investors who stood by the car-rental company through its bankruptcy filing last year.

Hertz shares rose 6% on Monday. The stock has declined since relisting on Nasdaq earlier this month, but is still well above the low levels where it was trading earlier in the pandemic, when Hertz warned shareholders their holdings might go to zero.

The company said that the new buyback program’s first phase will include $200 million of repurchases that were already authorized as part of the relisting.

The rest of the $2 billion program would follow completion of a deal for Hertz to buy back all of its Series A preferred shares. Those shares, mostly owned by Apollo Global Management Inc., a private-equity firm, were issued as part of efforts to rescue Hertz from bankruptcy as the coronavirus pandemic pummeled its business. Preferred shares give owners priority for dividend payments over owners of common stock.

As travel has rebounded, Hertz has found sounder footing in recent months, with greater revenue and a return to profitability. Its path through the past two years has traced markets’ unpredictable swings from pessimism to optimism and back again as the pandemic delivered investors a steady stream of surprises.

The car-rental firm entered the pandemic bearing high levels of debt. The sudden drop in travel and an initial fall in used-car values during the spring of 2020 led Hertz to file for bankruptcy in May 2020. Shares fell to a session low of 56 cents last spring before individual traders started piling in, buying Hertz stock even though it temporarily appeared that a restructuring could wipe out equity owners.

The New York Stock Exchange suspended trading of Hertz shares last year after the bankruptcy filing, though the stock continued to change hands in over-the-counter markets.

This year, as vaccines and abating pandemic conditions boosted travel demand, the company’s performance improved. Revenue was $1.91 billion in the September-ended quarter, more than double Hertz’s results for the 2020 quarter. Its profit was $605 million, compared with a year-earlier loss.

As that recovery was taking shape, a group that was led by institutional investors Knighthead Capital Management LLC and Certares Management LLC and included Apollo organized a restructuring deal in May 2021 that brought Hertz out of bankruptcy while keeping shareholders in the money.

Many individual investors who bought shares near their lows recorded outsize gains. With Hertz’s plan to buy back Apollo’s preferred shares, the private-equity firm stood to notch a 70% annualized return on its role in the restructuring.

New buybacks for common shareholders could add to returns for individual investors and other owners of Hertz shares. Buybacks boost stocks’ value because they remove shares from circulation, leaving remaining shareholders entitled to a larger portion of future profits.

Hertz listed on the Nasdaq earlier this month, debuting at $29 a share, but its stock has mostly edged lower since.

In the past few days, concerns about the new Omicron variant of Covid-19 have raised questions about the travel sector’s recovery, with countries adding new restrictions on some international travel to try to keep the strain at bay.

Hertz’s buyback plans come alongside a splashy effort by the company to invest in its fleet of rental cars by adding more electric vehicles. Last month, Hertz said it had ordered 100,000 cars from Tesla Inc., though recent back-and-forth between the companies has left it unclear how soon Hertz can expect to receive the cars.

 

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