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Hertz’s Complex Shareholder Payout Explained

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Hertz Global Holdings Inc. is concluding a chapter 11 case that generated big gains for shareholders, who are usually an afterthought in corporate bankruptcies. Bullish individual investors, in particular, were drawn to Hertz and were rewarded for the risk they took on a bankrupt stock.

But many of Hertz’s backers are unfamiliar with the bankruptcy process and with their options to get paid under the company’s exit plan, which was approved by a judge Thursday. WSJ Pro Bankruptcy breaks down the choices facing Hertz shareholders, who have a Friday deadline for some parts of the payout.

Q: How are shareholders treated under the bankruptcy plan?

A: A bidding war among investment firms drove up Hertz’s value so much it was able to cover its debts in full, with value left over for equity. Current shareholders will receive $1.53 in cash per share, plus their proportion of a 3% stake in the restructured business set aside for shareholders, and warrants for an additional 18% stake.

The warrants are akin to options, conferring on their owner the right to buy shares at a certain price. If Hertz’s equity valuation surpasses $6.5 billion, the warrants are in the money. The more Hertz is worth beyond that threshold, the more valuable the warrants.

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