CASE STUDY LEVERAGED RECAPITAL

                CASE STUDY

                LEVERAGED RECAPITALIZATION: HERTZ CORP

Hertz, the car rental company, was a buyout from Ford in December 2005. The total deal size of about $15 billion represented $4.4 billion paid to Ford for the equity, $0.4 billion of fees and expenses, and just over $10 billion of the company’s debt. The PE firms put in some $2.3 billion, with the balance of the purchase price being financed by various tranches of debt. Some 6 months after the deal was done, the company borrowed $1 billion, which was then paid to the investors as a dividend, meaning that they had recouped nearly half of their investment. The resultant high gearing was reduced in an initial public offering that took place in November 2006 – within a year of the original buyout. This left the PE companies as major shareholders, but having considerably reduced their investment. This transaction appears to represent gains made purely from financial engineering, rather than from any significant improvement in the underlying business.

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