Wells Fargo, US Bank Say Hertz Owes Them Money After Bankruptcy

Wells Fargo Bank N.A. and US Bank N.A. want a federal appeals court to force The Hertz Corp. to pay hundreds of millions of dollars the banks say are owed to noteholders left out of the rental car company’s Chapter 11 plan.

The banks seek the reversal of a December 2021 ruling from the US Bankruptcy Court for the District of Delaware dismissing their claims for make-whole premiums on a series of unsecured notes that totaled $2.7 billion.

“We’re deprived as unimpaired creditors. We were deemed to accept, and so we get nothing,” an attorney for the banks, Mark Stancil of Willkie Farr & Gallagher LLP, argued Wednesday before a three-judge panel of the US Court of Appeals for the Third Circuit. “It’s beyond serious dispute that the plan would have been confirmable had we been treated as impaired.”

The bankruptcy plan confirmed in June 2021 didn’t include payment of make-whole premiums to the noteholders, and it classified the notes as “unimpaired,” meaning those creditors didn’t have the right to vote on the plan. It also only provided for the federal judgment rate for the interest payable on the noteholders’ claims.

One day after Hertz emerged from bankruptcy, Wells Fargo and US Bank, the trustees for the unsecured notes, launched adversary proceedings in the bankruptcy court seeking payment of make-whole premiums of roughly $147 million and post-petition interest on the noteholders’ claims at the contract default rate, not the federal judgment rate, in an amount over $125 million.

Hertz argues the banks received everything they were owed.

“It’s worth asking the question, why is an unimpaired class resisting getting paid in full?” Hertz’s attorney, Paul Clement of Clement & Murphy PLLC, told the panel.

“We’re giving them what an impaired class would get in terms of post-petition interest. The only thing they don’t get is the same post petition interest plus a vote,” he said. “Giving somebody a vote on a plan that doesn’t impair them is just a non sequitur.”

Judges David Porter, Thomas Ambro, and Cheryl Ann Krause heard the arguments, questioning the attorneys extensively on the legislative history of federal bankruptcy codes and precedents set by other appeals courts.

Hertz is represented by Clement & Murphy PLLC, White & Case LLP, and Ashby & Geddes. Wells Fargo is represented by Willkie Farr & Gallagher LLP and Young Conaway Stargatt & Taylor LLP. US Bank NA is represented by Nixon Peabody LLP and Cross & Simon LLC.

The cases are In re The Hertz Corp., 3d Cir., Nos. 23-1169 and 23-1170, argument 10/25/23.