UPDATE 1: Supreme Court Invites ‘Views’ of Solicitor General on Hertz Request to Review Third Circuit Postpetition Interest, Make Whole Decision

Mon Jun 02, 2025 10:11 AM ET: In an order list today, the U.S. Supreme Court invited briefing from the Solicitor General on Hertz Global Holdings Inc.’s petition seeking review of the U.S. Court of Appeals for the Third Circuit’s Sept. 10, 2024, postpetition interest and make whole decision. “The Solicitor General is invited to file briefs in these cases expressing the views of the United States,” according to the order.

As discussed below, the split Third Circuit decision reversed the bankruptcy court in part and found that Hertz’s 2026/2028 noteholders are entitled to at least $270 million in contractual postpetition interest and redemption premiums on account of the solvent-debtor exception to the general prohibition on unmatured interest. The parties are negotiating a resolution of the dispute for $341.1 million but diverge on the cash portion and take-back financing terms.

In its petition, Hertz asks the Supreme Court to consider “[w]hether an unwritten pre-Code exception overrides the Bankruptcy Code’s express statutory text and allows creditors in solvent-debtor cases to recover amounts that the Code explicitly disallows.”

In May 2023, the Supreme Court declined to review similar rulings involving the solvent-debtor exception from the Fifth Circuit in Ultra Petroleum and the Ninth Circuit in PG&E. However, the Supreme Court did not request briefing from the Solicitor General’s before denying Ultra Petroleum and PG&E certiorari petitions. Hertz’ petition was distributed for consideration at the Supreme Court’s May 29 conference.

Hertz 2026/2028 Notes Trustee Says Supreme Court Review of Third Circuit Postpetition Interest Decision Not Warranted, Points to Ultra Petroleum, PG&E

Editor’s Note: This story has been updated to include recent figures for the postpetition interest and make whole premiums at issue.

Relevant Document:
Opposition

Wells Fargo, as trustee for the 2026/2028 notes issued by Hertz Global Holdings, contends in a brief filed yesterday, April 29, that Hertz’s request for review of the U.S. Court of Appeals for the Third Circuit’s Sept. 10, 2024, postpetition interest and make whole decision should be denied. Wells Fargo argues that the Third Circuit correctly awarded contractual postpetition interest and redemption premiums to the 2026/2028 noteholders and that the U.S. Supreme Court has previously declined to review the same issue.

The case hinges on whether Hertz, which emerged from bankruptcy in 2021 with sufficient assets to distribute more than $1 billion to shareholders, can avoid paying approximately $320 million in contractual postpetition interest and make whole premiums to the 2026/2028 noteholders who were deemed unimpaired creditors in the Hertz chapter 11 plan.

On Feb. 11, Hertz disclosed details of its negotiations with Wells Fargo, with both parties proposing to settle the postpetition interest and make whole dispute for $341.1 million but diverging on the cash portion and take-back financing terms. Hertz and Wells Fargo are also litigating approximately $27.6 million in incremental claims beyond the $328 million amount Wells Fargo says Hertz indisputably will owe if the Supreme Court does not reverse the Third Circuit’s ruling. Hertz reserved $320 million for the litigation in its November 2024 10-Q filing.

The Bankruptcy Code requires debtors to leave “unaltered the legal, equitable, and contractual rights” of creditors classified as “unimpaired.” Although Hertz classified the noteholders as unimpaired, its plan only provided for payment of postpetition interest at the federal judgement rate (approximately 0.15%) instead of the contractual rates (5.5% to 7.125%), even though Hertz was “indisputably solvent.”

In a split decision, the Third Circuit reversed U.S. Bankruptcy Judge Mary Walrath, in part, and found that Hertz’s 2026/2028 noteholders were entitled to at least $270 million in contractual postpetition interest and redemption premiums on account of the solvent-debtor exception to the general prohibition on the payment of unmatured interest. Hertz sought Supreme Court review of the Third Circuit decision on April 21.

Wells Fargo contends that the noteholders are entitled to full repayment of all legal, equitable and contractual rights, which include their claims for unmatured interest, because they were deemed unimpaired by a “wildy solvent” debtor. The solvent-debtor exception to the general bar on the payment of unmatured interest “stretches back over centuries of bankruptcy practice,” and the Third Circuit did not err in applying the exception in the absence of a clear indication that Congress intended to depart from the rule, according to the brief.

Without the solvent-debtor exception, Wells Fargo contends, the bar on unmatured interest would leave unimpaired creditors in solvent cases with “a reduced recovery vis-à-vis impaired creditors because they could not claim post-petition interest at all.” Allowing creditors to be classified as unimpaired while disallowing their claims for unmatured interest would deprive them of substantive and procedural protections that the Bankruptcy Code affords to impaired creditors whose rights are altered by a plan. This would leave unimpaired creditors worse off than they would have been as impaired creditors, the notes trustee says.

Wells Fargo further points out that in May 2023, the Supreme Court declined to review similar rulings from the Fifth Circuit in Ultra Petroleum and the Ninth Circuit in PG&E. Both circuits held that when a debtor is solvent, unimpaired creditors have an equitable entitlement to full repayment of all postpetition interest owed under their contracts or under governing state law. According to Wells Fargo, the Third Circuit adopted the same “consensus approach,” and its decision is consistent with both prior decisions. As a result, Wells Fargo contends, the Third Circuit’s decision “does not implicate any conflict of authority” that warrants Supreme Court intervention.

Wells Fargo also rejects Hertz’s argument that the Third Circuit’s decision conflicts with the Second Circuit’s 2022 LATAM Airlines opinion, which found creditors could be deemed unimpaired under a plan without receiving postpetition interest because claims are not impaired by the Bankruptcy Code’s disallowance provisions. Wells Fargo argues the case did not directly address the solvent-debtor exception, and Hertz cannot demonstrate that it would have prevailed under the Second Circuit’s approach.

Octus’, formerly Reorg’s, analysis of Hertz’s potential pursuit of a liability management transaction is available HERE. Octus’ webinar on Hertz’s flexibility under its credit documents can be found HERE.

Hertz is reportedly considering raising approximately $500 million in secured debt while exploring other options, including an equity sale through an on-market offering ahead of a potential litigation settlement with bondholders. Hertz’s stock value increased substantially after Pershing Square disclosed a 19.8% stake in the company on April 16.