Supreme Court rejects Hertz's request for a review. What does this decision signify?

Supreme Court Declines to Review Hertz's Appeal in Bondholder Interest Dispute

The U.S. Supreme Court has opted not to consider Hertz's appeal regarding a lower court ruling that requires the company to pay over $270 million in interest to its former bondholders.

On January 12, a panel of three justices denied Hertz's request for a hearing, with only one judge supporting the review.

Hertz did not immediately respond to requests for comment following the Supreme Court's decision.

This legal battle began in 2021, shortly after the Estero-based car rental company successfully exited Chapter 11 bankruptcy, emerging financially stronger.

Bondholders, who were excluded from voting on Hertz’s restructuring plan, quickly filed a lawsuit after the bankruptcy case closed. They argued that they had been shortchanged and insisted on receiving the full amount of interest they were contractually owed.

By paying off its debts early, Hertz avoided millions in future interest payments, which became the crux of the dispute.

The company maintained that bankruptcy laws prevented the accrual of "unmatured interest" after it filed for protection, and asserted that bondholders had already received the full amount due under their approved claims.

In September 2024, the bondholders prevailed in their appeal before the Third Circuit Court of Appeals in Pennsylvania, overturning the bankruptcy court’s earlier decision.

Judge Thomas Ambro, writing for the appeals court, noted that after restructuring, Hertz was so financially robust that it distributed $1.1 billion in cash and equity to shareholders—four times what bondholders were seeking in unpaid interest.

Ambro argued that it would be unjust for bondholders to receive less interest while shareholders, who have lower priority, benefited from a billion-dollar payout.

The majority opinion held that the "absolute priority rule" required bondholders to be paid in full at the agreed contract rate before any distributions could be made to shareholders.

However, Circuit Judge David Porter partially dissented, stating that the priority rule should not override the bankruptcy code’s general restriction on post-petition interest claims.

In response to the ruling, Hertz expressed disappointment with the 2-1 decision, arguing that the company had fulfilled all legal obligations by repaying bondholders the full principal and interest owed at the time of bankruptcy, plus post-petition interest at the federal judgment rate.

Reactions and Ongoing Impact

Hertz further stated that existing Third Circuit precedent supported the bankruptcy court’s original decision.

Attorneys representing the bondholders, including Mark Thomas Stancil of Willkie Farr & Gallagher (for Wells Fargo Bank) and Christopher Mason of Nixon Peabody (for U.S. Bank National Association), declined to comment on the outcome.

The U.S. Department of Justice’s solicitor general recommended that the Supreme Court reject Hertz’s petition, noting that both the Fifth and Ninth Circuit Courts have ruled that solvent debtors must pay all post-petition interest owed to unimpaired creditors under their contracts.

Following the Supreme Court’s refusal to hear the case, Hertz’s stock price dropped.

As the legal proceedings continue, the total amount owed to bondholders has grown to over $320 million, alongside rising legal expenses for Hertz.

About Hertz Global Holdings

Hertz Global Holdings relocated its headquarters to Estero in 2016, establishing a modern facility along U.S. 41.

The company and its affiliates operate several vehicle rental brands, including Hertz, Dollar, Thrifty, and Firefly, as well as the Hertz Car Sales brand in the U.S. and the Hertz 24/7 car-sharing service in Europe.