THE HERTZ CORPORATION, Et Al.,1 Debtors

Case 20-11218-MFW Doc 1272 Filed 09/11/20 Page 1 of 27 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: Chapter 11 1 THE HERTZ CORPORATION, et al., Case No. 20-11218 (MFW) Debtors. (Jointly Administered) ______________________________________________ THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS, on behalf of the estates of the Debtors, Adv. Pro. No. 20-_________ (MFW) Plaintiff, v. BARCLAYS BANK PLC, solely as the holder of a first lien and/or security interest in its capacity as collateral agent under an Amended and Restated Guarantee and Collateral Agreement dated November 2, 2017, and BOKF, N.A., solely as the holder of a second lien/and or security interest in its capacity as collateral agent under the Second Lien Collateral Agreement dated June 6, 2017, Defendants. COMPLAINT 1 The last four digits of The Hertz Corporation’s tax identification number are 8568. The location of the debtors’ service address is 8501 Williams Road, Estero, FL 33928. Due to the large number of debtors in these chapter 11 cases, for which joint administration for procedural purposes has been granted, a complete list of the debtors and the last four digits of their federal tax identification numbers is not provided herein. A complete list of such information may be obtained on the website of the debtors’ claims and noticing agent at https://restructuring.primeclerk.com/hertz. Case 20-11218-MFW Doc 1272 Filed 09/11/20 Page 2 of 27 The Official Committee of Unsecured Creditors (the “Committee” or “Plaintiff”) of The Hertz Corporation (“THC”) and its affiliated debtors and debtors in possession (collectively, the “Debtors”), by and through its undersigned counsel, on behalf of and as the representative of the Debtors’ estates, hereby alleges, for its complaint (“Complaint”) against Barclays Bank PLC (“Barclays”) solely as the holder of a first lien and/or security interest in its capacity as collateral agent, and BOKF, N.A. (“BOKF”), solely as the holder of a second lien/and or security interest in its capacity as collateral agent (collectively, the “Collateral Agents”), upon information and belief based on its investigation to date, as follows: INTRODUCTION 1. The Committee brings this adversary proceeding: For a declaratory judgment that the Debtors’ cash in certain deposit accounts on the petition date is not and was not subject to the Collateral Agents’ liens pursuant to the terms of the Collateral Agents’ security agreements and applicable law (Count One). For a declaratory judgment that any liens the Collateral Agents may have in approximately $307 million of cash held in certain deposit accounts on the petition date are unperfected and subject to avoidance, and are avoided, under section 544(a) of the Bankruptcy Code (Count Two). For declaratory judgments that the Collateral Agents’ liens do not extend to $580 million in money market securities owned by THC on the petition date that became subject to such liens during the 90 days prior to the petition date (the “Preference Period”), or to the proceeds of the sale of money market securities during the Preference Period, because the attachment of such liens should be avoided either as a preferential transfer (Count Three) or a constructively fraudulent transfer (Count Four). 2. In brief: the Collateral Agreements (defined below) exclude the Debtors’ deposit accounts listed on Exhibit 1 (the “Deposit Accounts”) and virtually all of the cash therein (“Cash”) from the Collateral Agents’ liens. Thus, such Cash is and always has been unencumbered except to the extent the Collateral Agents can prove under UCC § 9-315 that their Case 20-11218-MFW Doc 1272 Filed 09/11/20 Page 3 of 27 liens attached to such Cash as proceeds of other collateral. The Collateral Agents cannot prove that, however, because the Debtors commingled billions of dollars that were received and disbursed through the Deposit Accounts. 3. In addition, the Collateral Agents never obtained control over the Deposit Accounts or the Cash by agreement or otherwise – thus any such lien on Deposit Accounts or Cash as of the petition date was also unperfected and thus voidable under Bankruptcy Code § 544(a)(1). On the petition date, the Debtors’ Cash in the Deposit Accounts totaled approximately $307 million. The Committee seeks a declaratory judgment that such Cash, or such other amount determined by the Court, is not subject to the Collateral Agents’ liens. 4. During the Preference Period, and while THC was insolvent, THC transferred unpledged Cash to money market funds in return for money market securities to which the Collateral Agents’ liens attached. On the petition date, THC owned approximately $580 million of such securities. During the Preference Period but prior to the petition date THC also redeemed various money market securities and deposited the proceeds of those redemptions in various Deposit Accounts. The Committee seeks a declaratory judgment that the lien on such securities and the proceeds of the sale of any such securities is avoidable as a preference under 11 U.S.C. § 547(b), or, alternatively, as a constructively fraudulent transfer under 11 U.S.C. § 548(a)(1)(B). JURISDICTION AND VENUE 5. Pursuant to 28 U.S.C. §§ 157 and 1334(b), this Court has subject matter jurisdiction over this adversary proceeding, which arises under title 11 and arises in and relates to cases under title 11, specifically In re The Hertz Corporation, et al., Case No. 20-11218 (MFW). 2 Case 20-11218-MFW Doc 1272 Filed 09/11/20 Page 4 of 27 6. The statutory and legal predicates for the relief sought herein are the 11 U.S.C. §§ 544, 547, 548 and 550, 28 U.S.C. §§ 2201 and 2202, UCC § 9-315, Rule 7001 of the Federal Rules of Bankruptcy Procedure and the Collateral Agreements (as defined below). 7. This adversary proceeding is a “core” proceeding to be heard and determined by the Court pursuant to 28 U.S.C. § 157(b)(2), and the Court may enter final orders for matters contained herein. 8. Venue is proper in the District of Delaware pursuant to 28 U.S.C. § 1409. 9. Pursuant to Local Bankruptcy Rule 7008-1, Plaintiff states that it consents to the entry of final orders or judgments by the Court if it is determined that the Court, absent consent of the parties, cannot enter final orders or judgments consistent with Article III of the United States Constitution. PROCEDURAL BACKGROUND 10. On May 22, 2020 (the “Petition Date”), each of the Debtors commenced a case by filing a voluntary petition for relief in this Court under Chapter 11 of the Bankruptcy Code. The Debtors continue to operate their businesses and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 11. On June 11, 2020, the United States Trustee for Region 3 appointed the Committee to act as the official committee of unsecured creditors of the Debtors. 12. On August 26, 2020, the Committee moved for standing to file this Complaint [D.I. 1141]. The Court granted the Committee’s motion on September 8, 2020 [D.I. 1220]. 3 Case 20-11218-MFW Doc 1272 Filed 09/11/20 Page 5 of 27 THE PARTIES 13. Plaintiff is the Official Committee of Unsecured Creditors of the Debtors, acting on behalf of the Debtors pursuant to this Court’s order [D.I. 1220]. 14. Defendant Barclays in its capacity as collateral agent holds liens to secure THC’s obligations under the Senior Credit Agreement and Letter of Credit Agreement, further defined below. 15. Defendant BOKF in its capacity as collateral agent holds liens to secure the Debtors’ Prepetition Second Lien Notes, further defined below. FACTS I. The Relevant Debt and Related Agreements 16. THC is the lead borrower, together with various other Debtor-borrowers, under a Credit Agreement dated June 30, 2016 (as amended, restated, supplemented, or otherwise modified as of the Petition Date, the “Senior Credit Agreement”). The Senior Credit Agreement provides for both a term loan (the “Senior Term Loan”) and revolving credit facility (the “Senior RCF”). The Senior RCF provides a sub-limit for letters of credit (the “Senior RCF LCs”). Barclays is the administrative agent and collateral agent for these facilities. As of the Petition Date, the outstanding principal balance of the Senior Term Loan was approximately $656 million, the outstanding principal balance of the Senior RCF was approximately $615 million and the aggregate outstanding amount in issued Senior RCF LCs was approximately $243 million. 17. THC and the other Debtor-borrower entities are also party to a Letter of Credit Agreement dated November 2, 2017 (as amended, restated, supplemented, or otherwise modified as of the Petition Date, the “Letter of Credit Agreement”). Barclays is the administrative agent and collateral agent for this facility as well. As of the Petition Date, the aggregate outstanding 4 Case 20-11218-MFW Doc 1272 Filed 09/11/20 Page 6 of 27 amount in issued letters of credit under the Letter of Credit Agreement was approximately $299 million. Finally, various Debtor entities were also party to certain prepetition hedge agreements (the “First Lien Hedge Agreements”). As of the Petition Date, the outstanding principal balance owed under the First Lien Hedge Agreements was approximately $2.313 million. 18. THC and the other borrowers’ obligations under the Senior Credit Agreement, the Letter of Credit Agreement and First Lien Hedge Agreements are secured by a first lien on collateral identified in a Guarantee and Collateral Agreement dated November 2, 2017 (as amended, restated, supplemented, or otherwise modified as of the Petition Date, the “Guarantee and Collateral Agreement”). 19. Claims for principal, interest and all other obligations arising under or in connection with the Senior Term Loan, Senior RCF, Letter of Credit Agreement and First Lien Hedge Agreements are referred to as the “First Lien Claims” and the holders thereof, the “First Lien Creditors.” As of the Petition Date, the aggregate amount of all First Lien Claims asserted by First Lien Creditors exceeded $1.815 billion.

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