Hertz's $375 Million Notes Offering and Its Strategic Implications

Hertz Global Holdings' recent $375 million exchangeable senior notes offeringHertz Announces Pricing of Upsized $375 Million Exchangeable Senior Notes Offering^[1] represents a critical maneuver in its ongoing debt restructuring efforts. With an interest rate of 5.500% and a maturity date of October 1, 2030, the notes are designed to refinance $500 million in senior unsecured notes maturing in December 2026Hertz Announces $250 Million Exchangeable Senior Notes Offering^[2]. This transaction, upsized from an initial $250 million target, underscores the company's urgent need to extend its debt maturity profile and reduce short-term liquidity pressures. However, in a rising interest rate environment and amid persistent leverage challenges, the strategic implications of this offering warrant closer scrutiny.

Refinancing Risk in a High-Leverage Context

Hertz's debt-to-EBITDA ratio of 8.97 as of Q3 2025Hertz Global Holdings Debt-to-EBITDA^[3] places it far above the Business Services industry median of 1.625, signaling severe financial stress. The company's debt-to-equity ratio of -35.59Hertz Global Holdings Debt to Equity Ratio 2016-2025^[4]—a metric reflecting liabilities exceeding equity—further highlights its precarious capital structure. While the new notes offer a lower interest rate than Hertz's 2024 first lien senior secured notes (12.625%Hertz Announces Upsize and Pricing of $1 Billion Offerings^[5]), the extended maturity to 2030 merely delays, rather than resolves, its refinancing challenges.

Fitch's recent reaffirmation of Hertz's 'B-' credit rating with a negative outlookFitch Affirms Hertz at 'B-'; Outlook Negative^[6] underscores the agency's skepticism about the company's ability to sustain its debt obligations. Hertz's adjusted EBITDA turned positive in Q2 2025 ($10 millionEarnings call transcript: Hertz Global Holdings sees positive EBITDA in Q2 2025^[7]), but this follows seven consecutive quarters of losses. The reliance on exchangeable notes—convertible into shares at a 32.5% premium to the stock priceHertz to issue $375 million in exchangeable senior notes due 2030^[8]—introduces equity dilution risks if the company's share price recovers, potentially eroding shareholder value.

Capital Structure Optimization: Trade-offs and Constraints

The offering's proceeds will partially redeem 2026 debt and fund capped call transactions to mitigate dilutionHertz Announces Offering of $500 Million of Additional First Lien Senior Secured Notes^[9]. This strategy aligns with Hertz's broader goal of reducing its $16.77 billion in long-term debt as of March 2025Hertz Global Holdings Long Term Debt 2016-2025^[10]. However, the company's liquidity position—$1.2 billion as of Q1 2025Hertz Global Holdings Inc (HTZ) Q1 2025 Earnings Call^[11]—must now balance debt repayment, fleet optimization (8% capacity reduction year-over-yearHertz Logs Best Quarterly Results In Nearly Two Years^[12]), and operational investments.

A key advantage of the 5.500% notes is their fixed-rate structure, insulating Hertz from further rate hikes in the near term. Yet, with the Federal Reserve signaling prolonged high rates, the company's ability to access favorable financing in the future remains uncertain. The 2030 maturity also locks in capital at a time when Hertz's EBITDA volatility could strain its interest coverage ratios.

Strategic Implications for Investors

For investors, Hertz's offering reflects a high-stakes gamble: extending maturities to avoid immediate defaults while navigating a fragile recovery. The company's 2027 target of $1 billion in adjusted EBITDAHertz Global’s Long and Winding Road to Recovery – Credit Report^[13] hinges on sustained fleet optimization and cost discipline. However, with a debt load exceeding $16 billion and a credit rating near junk status, the margin for error is slim.

The exchangeable notes' equity conversion feature could provide a lifeline if Hertz's stock rebounds, but this hinges on operational improvements outpacing market skepticism. For now, the offering buys time but does not address the root causes of Hertz's leverage crisis—a reality that will test management's ability to execute its transformation plan in a persistently challenging financial environment.