How Hertz Engineered a Solvent Bankruptcy

Added: 2026-05-26

[00:00:00]This has only happened a couple times in history, but it actually happened just recently on a massive scale. So, what happens when a bankrupt company accidentally becomes rich overnight?

[00:00:09]Well, you go to court to fight over the scraps. Because the private equity buyout was so massive, Hertz Rental Car became a very rare solvent debtor. They had enough cash to pay every single creditor in full, but the hedge funds wanted more. So, they demanded post-petition interest and massive make-whole prepayment premiums. They argued that if the equity holders were getting a recovery, then the debt holders deserved every single penalty fee in the entire contract. And guess what? The courts agreed. The Third Circuit ruled that solvent debtors must pay contract rates and make-whole premiums before equity even gets a dime, even retail equity. The absolute priority rule is ruthless. Debt eats first. I say this every time.