As travelers experience rising car rental rates over the holiday season due to overcrowding and the lack of new vehicles, two well-known financial groups are reaping huge profits from one of the most lucrative hedge fund businesses in 2021.
Certares Management and Knighthead Capital Management are on the verge of earning nearly $ 3bn after a staggering $ 2bn in May at Hertz, one of the trips by which car rental pioneers came out on a payday loan.
Central to their economic vision is the fact that the plague that hit Hertz, the global collapse of the world and the disruption of its fleet, will be a continual mess with long-term opportunities.
Advertisers in New York believe that corporate ships and resorts can be rebuilt as the foundation for a thriving corporate automotive industry and the upcoming independence of autonomous taxis.
“There is always a single section that is at the peak of every crisis,” said Tom Wagner, a former Goldman Sachs manager who founded Knighthead in 2008 to focus his money on the crisis. “At the time, it was walking and having fun. If we can do it right, we can do everything right. ”
With this in mind, Knighthead, which now operates $ 8.3bn, and Certares, which oversees travel, tourism and hospitality, raised $ 1.5bn in spring 2020 to cover the troubled travel budget.
They did not wait long to spend the money. When Hertz issued for bankruptcy in May 2020, it was the kind of opportunity he had in mind.
Together they rode a sprint marketing strategy to remove the company from Chapter 11 management. When he won, he made a whopping $ 2bn in Hertz, inspired by the money he had already earned and the money he had.
The interest rate on their investments has increased 2.5 times in the seven months since – a positive return on anxious investors who have not had the opportunity to make a lot of money in the long run when the central bank’s intervention has helped the markets.
In November, Knighthead and Certares put Hertz back on the Nasdaq and sold about $ 500m in shares but retained 39 percent in the company, valued at $ 4.5bn. The financial group Apollo Global, which made $ 1.5bn from Hertz as part of the missing business, redeemed the same month about $ 1.9bn – a profit of more than 25 percent in just six months.
The epidemic continues but the economy of the lending industry has changed, adding to the interest in Certares and Knighthead business. Hertz is at risk of making more than $ 2bn in spending this year, almost four times its profit margin, although the rate has dropped by 43%, according to experts’ estimates at JPMorgan.
What drives the main profit is the global semiconductor decline which has reduced the production of new vehicles.
With limited capacity to expand their fleet, brands such as Hertz and Avis Budget have raised prices to meet growing demand. The cost of renting cars for a day on vacation was more than $ 100 a day at seaside destinations such as Hawaii and gymnasiums in Colorado, Montana, Utah and Wyoming, according to the online travel agency Kayak.
Meanwhile, the difficulty of buying equipment has led to an increase in the prices of used cars, which also helps under Hertz – rental car companies have larger ships that they sell to car dealers as they age.
While the group is benefiting from the downturn, Certares and Knighthead believe there is an opportunity to use the profits to renovate Hertz, founded in 1918 to rent Ford Model T cars, to become an essential base for electric vehicles and independent taxis.
“To get the job done, we decided we needed to push electricity,” Wagner said. “Hertz owns within 10 miles of 90 percent of the US population.”
With more than 12,000 locations worldwide, plus many US airports, he added, Hertz could become an automotive production facility where travelers rent to car manufacturers such as Tesla that do not have large retail networks, showcasing electric vehicles to new customers.
Hertz revealed later this year that it did ordered 100,000 Teslas by the end of 2022, one way to use its space as a payment system for electric vehicles. It also affected the partnership with the Uber team which is expected to make 50,000 Tesla available to Uber drivers by 2023.
Existing Hertz sites are very important along the way, because building new car rental facilities is expensive and burdensome. And its suburbs could be a great help to Uber drivers to adopt electric vehicles, according to Greg O’Hara, founder of Certares.
O’Hara believes that Hertz’s store will eventually become a place to clean and charge for self-driving taxis, and hopes to unveil new partnerships to put payrolls in more parking lots.
“This should be one of the best things to buy ESG on the market today,” he said, pointing to the growing demand among investors in environmental, cultural and regulatory markets. “It helps the internal combustion engine company to become an electric vehicle company, as well as the automotive operations company itself.”
The company’s views are controversial in Washington. In November, prominent Massachusetts senator Elizabeth Warren sent a letter to Hertz criticizing the company for raising mortgage rates and approving a $ 2bn shopping program after the company sold cars and fired thousands of employees in a timely manner, sparking complaints from customers.
“The company is delighted to reward its executives, insiders and shareholders while depriving buyers of high interest rates and ignoring the recent record that has almost wiped out the company,” he wrote. “Hertz has a responsibility to make people aware of corporate greed.”
Wagner and O’Hara see their investment in Hertz not as corporate greed but as paying for a future car business.
“We have a commitment to install electricity,” said Wagner, describing the work of Hertz and Tesla, Uber and Carvana, an online car dealer. This “requires a lot of money to buy cars, save money on network bills and sell used cars. . . You can expect to see this grow and we will become more proficient as we do. ”
Additional reports of the Sujeet Indap in New York