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Hertz files for U.S. bankruptcy protection as car rentals evaporate in pandemic

Stock MarketsMay 23, 2020 09:01AM ET
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2/2 © Reuters. FILE PHOTO: A Hertz rental car sign is placed outside a rental lot near Detroit Metropolitan airport in Romulus 2/2

By Mike Spector

NEW YORK (Reuters) - The more than a century old car rental firm Hertz Global Holdings (NYSE:HTZ) Inc filed for bankruptcy protection on Friday after its business was decimated during the coronavirus pandemic and talks with creditors failed to result in much needed relief.

Hertz's board earlier in the day approved the company seeking Chapter 11 protection in a U.S. bankruptcy court in Delaware, according to court records. Its international operating regions including Europe, Australia and New Zealand were not included in the U.S. proceedings, the company said.

The firm, whose largest shareholder is billionaire investor Carl Icahn with a nearly 39% ownership stake, is reeling from government orders restricting travel and requiring citizens to remain home. A large portion of Hertz's revenue comes from car rentals at airports, which have all but evaporated as potential customers eschew plane travel.

With nearly $19 billion of debt and roughly 38,000 employees worldwide as of the end of 2019, Hertz is among the largest companies to be undone by the pandemic. The public health crisis has also caused a cascade of bankruptcies or Chapter 11 preparations among companies dependent on consumer demand, including retailers, restaurants and oil and gas firms.

U.S. airlines have so far avoided similar fates after receiving billions of dollars in government aid, an avenue Hertz has explored without success.

The Estero, Florida-based company, which operates Hertz, Dollar and Thrifty car-rentals, had been in talks with creditors after skipping significant car-lease payments due in April. Forbearance and waiver agreements on the missed payments were set to expire on May 22. Hertz has about $1 billion of cash.

The size of Hertz's lease obligations have increased as the value of vehicles declined because of the pandemic. In an attempt to appease creditors holding asset-backed securities that finance its fleet of more than 500,000 vehicles, Hertz has proposed selling more than 30,000 cars a month through the end of the year in an effort to raise around $5 billion, a person familiar with the matter said.

On May 16, the board appointed executive Paul Stone to replace Kathryn Marinello as CEO. Hertz earlier laid off about 10,000 employees and said there was substantial doubt about its ability to continue as a going concern.

Hertz's woes are compounded by the complexity of its balance sheet, which includes more than $14 billion of securitized debt. The proceeds from those securities finance purchases of vehicles that are then leased to Hertz in exchange for monthly payments that have risen as the value of cars fall.

Hertz also has traditional credit lines, loans and bonds with conditions that can trigger defaults based on missing those lease payments or failing to meet other conditions, such as delivering a timely operating budget and reimbursing funds it has borrowed.

Hertz earlier signaled it could avoid bankruptcy if it received relief from creditors or financial aid the company and its competitors have sought from the U.S. government. The U.S. Treasury has started assisting companies as part of an unprecedented $2.3 trillion relief package passed by Congress and signed into law.

A trade group representing Hertz, the American Car Rental Association, has asked Congress to do more for the industry by expanding coronavirus relief efforts and advancing new legislation targeting tourism-related businesses.

Even before the pandemic, Hertz and its peers were under financial pressure as travelers shifted to ride-hailing services such as Uber (NYSE:UBER).

To combat Uber, Hertz had adopted a turnaround plan, aiming to modernize its smartphone apps and improve management of its fleet of rental cars.

Hertz traces its roots to 1918, when Walter Jacobs, then a pioneer of renting cars, founded a company allowing customers to temporarily drive one of a dozen Ford Motor (NYSE:F) Co Model Ts, according to the company's website.

Hertz files for U.S. bankruptcy protection as car rentals evaporate in pandemic
 

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Comments (18)
Boyi Liu
Boyi Liu May 24, 2020 2:29AM ET
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This is a bullish sign for the Hertz stock. Buy buy buy! HTZ all in!
Gabor Toth
Gabor Toth May 24, 2020 2:29AM ET
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Francesco Lucchesi
Francesco Lucchesi May 23, 2020 1:36PM ET
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hopefully those awful us airlines will follow same fate
Ave Joe
Ave Joe May 23, 2020 12:47PM ET
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I would not pay more than 2500 for a POS car from them
Buzzy Jefferson
Buzzy Jefferson May 23, 2020 12:21PM ET
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Thanks China.. you wart.
ATUL BARIDE
SecondWise May 23, 2020 11:47AM ET
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Antique Business Model
John Patrick
John Patrick May 23, 2020 11:30AM ET
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Easy Credit = lots of debts. A slight economic hiccup = bankruptcies all round
maga king
maga king May 23, 2020 11:08AM ET
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go to hellll you scam!
Robert Madhosingh
Robert Madhosingh May 23, 2020 10:49AM ET
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Dobyou sell tuesday and take a loss or rude it out?
Brady Murray
Brady Murray May 23, 2020 5:03AM ET
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Too much debt. get you every time. unless you are an airline. it will get you later. for now the tax payer has your back like it or not
Kevin Johnson
Kevin Johnson May 23, 2020 2:50AM ET
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100 year old company survived the great depression and great recession, but cant survive the current all time high market ? Seems market isnt correctly priced
Ben Dover
Ben Dover May 23, 2020 2:50AM ET
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I suspect that it was managed a lot better in the past and didnt have predatory wall street and banksters playing against it. Plus everything was proudly made in usa for the good of usa. Now u have american politicians like Pelosi undermining america and dems wanting to destroy economy and country to hurt trump. Sad day in history..really sad. I'm curious nownwhat will happen next week and comming weeks with shares of htz.how will they trade etc...might be a good opportunity for some trading on price swings..apparently itnwill continue trading
Michael Redden
Michael Redden May 23, 2020 2:50AM ET
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And not once was the USA closed for business... has nothing to do with current market price
Buzzy Jefferson
Buzzy Jefferson May 23, 2020 2:50AM ET
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Michael Redden   - You’re on crack.
Muhamed Jaffir
Muhamed Jaffir May 23, 2020 1:22AM ET
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they won't be the last auto sales in the US are doomed a flood of used cars with decreased demand across the board.
Chris Wirth
Chris Wirth May 23, 2020 12:34AM ET
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Expect some inexpensive rental cars to hit the market soon!
John Mars
John Mars May 23, 2020 12:34AM ET
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They won't be discounted.
maga king
maga king May 23, 2020 12:06AM ET
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glad to see. this company scammed me multiple times!
Trump Print Print Print
Trump Print Print Print May 23, 2020 12:06AM ET
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Agree!
Matt Terry
Matt Terry May 22, 2020 11:47PM ET
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good riddance. these companies deserve to cease to exist because of how poorly they were run
Agnius Paradnikas
Agnius Paradnikas May 22, 2020 11:41PM ET
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Domino effect has started.
Robert Dziadkowiec
Robert Dziadkowiec May 22, 2020 11:32PM ET
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Tuesday: Hertz stock sky rockets on hopes of vaccine, because vaccine also cures the economy along with hertz. Wednesday: Stock market rises by 3% on hopes of vaccine because vaccine already cured hertz. Thursday: Stock market rises on hopes miraculous revival of economy because the vaccine rivided the hertz. Friday: Stock market sky rockets because it continues on the weekly momentum. I think we forgot the main reason. The printer Powell.
anony mous
anony mous May 22, 2020 11:32PM ET
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Free market looks like something of the past
John Mars
John Mars May 22, 2020 11:32PM ET
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Friday, "market falls due to virus concerns". The articles are repetitive and recycled.
Brian Helmuth
Brian Helmuth May 22, 2020 11:29PM ET
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Bullish!
Fernando Pinto
Fernando Pinto May 22, 2020 11:21PM ET
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Tuesday: Hertz stock rises on hopes of more stimulus
Phil Poon
Phil Poon May 22, 2020 11:21PM ET
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Wednesday : market drops as stimulus fall short of expectation
Gordon Tangen
Gordon Tangen May 22, 2020 11:21PM ET
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this was the one dip buy I whiffed on!
Robert Dziadkowiec
Robert Dziadkowiec May 22, 2020 11:21PM ET
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Thursday: printer Powell starts using more liquid ink in his mad printer. And Stock market sky rockets.
 
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