Debt and coronavirus push Hertz to go bankrupt

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Hertz filed for bankruptcy on Friday, unable to weather the coronavirus pandemic that has crippled travel around the world and, with it, the highly indebted 102-year-old car rental company.

Lenders to the Estero, Florida-based company were unwilling to extend their car rental debt payments beyond a deadline on Friday, prompting the filing of the complaint. Delaware bankruptcy court.

Hertz and its subsidiaries will continue to operate, according to a company statement. The main international operating regions and Hertz franchised sites are not included in the file, the statement said.

By the end of March, Hertz Global Holdings Inc. had accumulated $ 18.7 billion in debt with only $ 1 billion in available cash.

Starting in mid-March, the company – whose car rental groups also include Dollar and Thrifty – lost all revenue when the trip closed due to the new coronavirus, and began to run out of payments in April. . Hertz has also been in turmoil from management, appointing its fourth CEO in six years on May 18.

“No business is built for zero income,” former CEO Kathryn Marinello said during the company’s first quarter earnings conference call on May 12. “It’s only been so long that corporate reserves will carry them.”

At the end of March, Hertz fired 12,000 workers and put 4000 others on leave, reduced vehicle purchases by 90% and stopped all non-essential expenses. The company said the measures would save $ 2.5 billion a year.

But the cuts came too late to save Hertz, the country’s second largest car rental company founded in 1918 by Walter L. Jacobs, who started out in Chicago with a fleet of a dozen Ford Model Ts. Jacobs sold the business, originally called Rent-A-Car Inc., to John D. Hertz in 1923.

In a note to investors in late April, Jefferies analyst Hamzah Mazari predicted that rival Avis would survive the coronavirus crisis, but Hertz had only 50 to 50 chances “since it was slower to reduce costs ”.

On May 18, Hertz made the unusual decision to appoint Chief Operating Officer Paul Stone as CEO and announced that Marinello would step down from the position of CEO and the company’s board of directors. Mazari described the change as unusual a few days before a possible bankruptcy. He also noted that CEO changes have been common at Hertz since financier Carl Icahn joined the company in 2014.

Icahn’s holding company is Hertz’s largest shareholder, with a 38.9% stake in the company, according to FactSet.

Deutsche Bank analyst Chris Woronka credited Marinello for boosting Hertz’s revenue growth, writing in a note to investors that it increased 16% in 2018 and 2019 combined.

Hertz’s bankruptcy case was not a surprise. In its first quarter report filed earlier in May with securities regulators, the company said it may not be able to repay or refinance its debt and may not have enough cash to continue operating.

“Management has concluded that there is genuine doubt as to the ability of the company to continue operating within one year of the date of publication of this quarterly report,” he said.

As part of a Chapter 11 restructuring, creditors will have to settle for less than the total amount, but the company is expected to continue operating.

Hertz is not the first company in difficulty to be bankrupted by the coronavirus crisis. The company joins the J.C. Penney department store chain, as well as Neiman Marcus, J. Crew and Stage Stores.

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