Halister News

(Bloomberg) -- Liens covenant tied to Hertz Global Holdings $1.25b sale of 7.625% secured junk-bond notes due 2022 “provides ample opportunities for manipulation,” Ross Hallock, an analyst at independent credit research firm Covenant Review, said in a report late Thursday.

• 4x consolidated secured leverage ratio shouldn’t be interpreted as a cap on the amount of parity lien secured debt, Hallock says; debt can be secured up to that ratio, and then additional parity liens can be secured under other carve-outs using tack-on notes
  • That would dilute a bondholder’s collateral position by reducing the value of the lien, Hallock said in a phone interview Friday
  • Carve-outs include $200m of parity lien debt under the general liens basket, $2.4b cap under credit facilities liens basket
  • Language doesn’t necessarily mean that $2.4b carve-out can’t be used for any incremental secured debt in excess of the 4x threshold
• Restricted payments covenant contains “fundamental flaw” for secured offering by not restricting prepayment of senior unsecured debt
• Hertz could sell all of its assets to a public co. without triggering a change of control
• Co. representatives didn’t immediately respond to request for comment
• Related story: Hertz’s New Debt Could Allow Asset Sales to Reward Shareholders

To contact the reporter on this story: Molly Smith in New York at msmith604@bloomberg.net To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net Rick Green