(Bloomberg) – Hertz Global Holdings Inc. has disagreed with a key group of creditors over the course of time to reach an agreement that resolves missed debt payments, according to people familiar with the matter.
The stalemate between the car rental company and creditors, including holders of asset-backed securities linked to vehicle fleets, arises as some investors have become more confident that they will be restored if Hertz files for bankruptcy and is forced to sell cars supporting their ties, people said.
Hertz has until Friday to extend a forbearance agreement or make approximately $ 400 million in lease payments. If no agreement can be reached, Hertz may have to go to court in the next few days, people say. One of the major shareholders, Carl Icahn, could still intervene with a last-minute rescue to protect a $ 1.6 billion investment, worth about $ 170 million at the close of Thursday, said one of the people.
A Hertz representative declined to comment. The company’s shares plunged 54% to $ 1.30 after the close of regular negotiations.
Rising prices for used vehicles from dismal levels in March and April have prompted ABS holders not to extend the forbearance period for Hertz a second time, people said. In April, lenders were more willing to be lenient to avoid selling the vehicles that support ABS in a deeply depressed market.
Pre-owned vehicle prices hit the bottom of the week ending April 19, down more than 15% from their levels prior to government shutdown orders, according to market researcher J.D. Power. At the end of the first week in May, prices were down less than 10%.
However, any liquidation scenario presents a risk for bondholders. Selling cars quickly can help maximize the value of rapidly depreciating assets, but flooding the market with too many cars drives prices down.
“Cars don’t like good wine; they don’t get better with age, “said Dan Zwirn, CEO of Arena Investors, who has held debt and equity securities in auto companies for over 20 years.
Few bondholders expect used vehicle prices to fall so low that holders of the largest and highest rated portions of the ABS would suffer losses. Although Hertz ABS has faced downgrades, any pain from liquidations would likely be felt in smaller, lower-rated tranches of securities, people said.
The senior tranches of Hertz debt issued between 2015 and 2019 changed hands on Thursday for between 93.5 and 95 cents on the dollar. A lower-rated portion of a 2015 deal lost about 19 points to trade at 81 cents, according to Trace.
Any decision by Icahn could force him to deal with bond holders like Apollo Global Management Inc., who bought Hertz’s debt at depressed prices after settling a short bet she had on the swap market on credit default.
An Icahn representative did not immediately respond to a request for comment, when Apollo declined to comment.
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