Advantage had to file for bankruptcy protection last month after Hertz terminated their vehicle lease agreements, saying Advantage had failed to make some payments on 24,000 vehicles.

Hertz has now agreed to let Advantage to continue to use the vehicles in return for payments, Simply Wheelz LLC, which does business as Advantage, said in a court document on Tuesday.

The settlement also gives Catalyst an option to buy the leased vehicles from Hertz, which will make a $2.8 million payment to Catalyst once it completes its purchase of Advantage.

Hertz did not respond to requests seeking comment.

Hertz sold Advantage to Franchise Services of North America (FSNA) last year to satisfy antitrust authorities, following its purchase of Dollar Thrifty, which competes with Advantage in low-cost car rentals.

Under that sale, FSNA was required to book any losses from the sale of the leased vehicles.

FSNA contested Hertz's decision to terminate the lease in November and said the book value of the cars passed to them at the time of the sale was too high.

A final hearing on the sale of Simply Wheelz to Catalyst is scheduled for December 17.

The case is In re: Simply Wheelz LLC, d/b/a Advantage Rent-A-Car, Case No. 13-0332-ee, U.S. Bankruptcy Court, Southern District Of Mississippi.

(Reporting by Sagarika Jaisinghani in Bangalore; Editing by Maju Samuel)