Hertz Supreme Court Loss: A $320M Payment is Now Inevitable

The event is now final. On January 12, the U.S. Supreme Court declined to hear Hertz's appeal, leaving the company on the hook for over $270 million in interest payments to former bondholders. This decision, made by a three-judge panel with one judge in favor of granting review, effectively upholds a 2024 ruling from the Third Circuit Court of Appeals. The legal dispute stems directly from Hertz's 2021 exit from Chapter 11 bankruptcy, where the company paid off its bonds early. Bondholders argued this deprived them of future interest, and the appeals court agreed, stating they should be paid in full before stockholders received distributions.

The mechanics are clear. Hertz's bankruptcy exit was a financial success for its former equity owners, who received a total of $1.1 billion in cash and equity. The appeals court found it profoundly unfair to deny bondholders their full interest when junior shareholders got such a large payout. The court concluded that the bankruptcy code's general prohibition on post-petition interest doesn't apply in cases where a company is "flush with cash" after reorganization. This narrow margin in the Supreme Court's denial-just one judge wanted to hear the case-means the ruling is now inevitable.

The immediate market impact was a direct hit to Hertz's shares. The finality of the Supreme Court's decision removes any remaining legal uncertainty, crystallizing a significant cash outflow. The company now faces payments estimated at over $320 million in interest and legal costs. For investors, this transforms a potential future liability into a confirmed, near-term expense, pressuring the company's balance sheet and free cash flow. The catalyst has delivered its verdict.

Financial Mechanics: Liquidity Levers and Balance Sheet Impact

The $320 million payment is now a confirmed cash outflow, not a theoretical risk. This figure covers both the interest owed and legal costs, representing a significant but manageable hit to Hertz's liquidity. The company's ability to absorb this without straining operations hinges on its substantial corporate resources. Analysts note Hertz maintains sufficient liquidity with approximately $2.2 billion in corporate resources to cover the payment.

This buffer provides a clear margin of safety. The obligation, while large, does not threaten the company's financial flexibility or force it to tap into operational cash flow. Hertz retains multiple liquidity levers, including a $250 million equity ATM and $500 million incremental debt capacity, ensuring the litigation payment won't create undue financial strain. The ruling affirms the so-called "solvent debtor exception," a precedent that will require future reorganized companies with ample cash to pay contract-rate interest post-bankruptcy.

The bottom line is one of containment. The Supreme Court's finality removes legal uncertainty, crystallizing the expense. Yet Hertz's balance sheet strength means this event is more of a liquidity management issue than a solvency crisis. The company can pay the bill from its existing war chest, preserving its financial options for investment and growth.

Trading Implications: Timing, Secondary Risks, and Capital Flexibility

The immediate catalyst is now a done deal. The Supreme Court's finality means the $320 million payment is a discrete cash outflow from Hertz's liquidity pool, likely occurring in the next quarter. This will be a clean, one-time hit to the company's corporate resources, which analysts estimate at approximately $2.2 billion. The stock's reaction to the announcement was a direct debit to the balance sheet; the next trading move will hinge on execution and the company's stated liquidity levers, including a $250 million equity ATM and $500 million incremental debt capacity.

A key secondary risk is the potential for additional legal costs or claims from other creditor groups. While the current ruling is narrow, focused on the specific "solvent debtor exception" for Hertz's bondholders, the U.S. Solicitor General's amicus brief noted that this issue may not be fully settled in bankruptcy litigation more broadly. The case will now return to bankruptcy court to determine the precise amount owed, with disputes centering on an additional $27+ million in interest beyond the agreed $328 million. This could introduce minor volatility or a slight upward revision to the final liability, but the core $320 million obligation is fixed.

The real trading signal will come post-payment. Investors should monitor Hertz's guidance and capital allocation plans to see if the company redirects funds toward debt reduction or shareholder returns. The payment, while significant, does not threaten financial flexibility. The company's ability to manage this expense from its existing war chest without straining operations signals post-crisis financial discipline. Any move to aggressively pay down debt or initiate a buyback would reinforce the narrative of a balanced, cash-generative business. Conversely, a lack of clarity on capital allocation could leave the stock vulnerable to renewed scrutiny over its financial priorities.