Hertz files for bankruptcy after demand for rental cars vanishes

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(Bloomberg) – Hertz Global Holdings Inc., the car rental company founded with a dozen Ford Model Ts more than a century ago, filed for bankruptcy Friday night after sweeping travel restrictions and economic collapse global has destroyed the demand for its vehicles.

The filing of Chapter 11 in Delaware allows Hertz to continue operating while it develops a plan to pay creditors and turn around the business. The second largest US car rental company does not need debtor financing in possession at this time, according to someone familiar with the matter, as it has more than $ 1 billion in cash.

The Hertz court petition indicated approximately $ 25.8 billion in assets and $ 24.4 billion in debts, and its main creditors are IBM Corp. and Lyft Inc. After the coronavirus pandemic decimated revenues, the car tenant requested relief from the lenders and a bailout from the US Department of the Treasury. But while it successfully negotiated a short-term stay with creditors, it was unable to reach longer-term agreements.

“With the severity of the impact of Covid-19 on our business and the uncertainty as to when travel and the economy will rebound, we must take further steps to weather a potentially prolonged recovery,” said Paul Stone. , president and chief executive officer of Hertz in a statement. The Estero, Florida-based company appointed him its fifth CEO since 2014, just four days before filing for bankruptcy.

Related: Hertz Embarks On Cash Flow Crisis After Years Of Management Uproar

Analysts have warned of the ramifications of the broader auto industry following the Hertz bankruptcy. The company has a fleet of about 400,000 cars in the United States that are not subject to buyout agreements with automakers and could be wound up, wrote Michael Ward, analyst at Benchmark Co., in a report last week. .

“The risk to the auto sector arises if the creditors of the vehicle-secured debt decide to liquidate the fleet to repay the bonds,” Ward wrote on May 14. The impact of these sales on the prices of used cars could be minimized by the sale of these vehicles over several months, he said.

Cash position

Hertz said it has enough cash at the moment to support its operations, including Hertz, Dollar, Thrifty, Firefly, Hertz Car Sales and Donlen. But it may need to be increased further, perhaps by increasing borrowing while the bankruptcy process progresses.

Chapter 11 procedures involve the company’s US and Canadian subsidiaries and do not include its international operations in Europe, Australia or New Zealand.

“Hertz may have no choice but to cut operations and sell assets to pay off its large guaranteed debt,” said Joseph Acosta, partner in the bankruptcy case at law firm Dorsey & Whitney, in an email. “Hopefully the restructuring expenses will not bury the company in the process. “

The company started laying off workers to save money in March as emergency measures to contain the virus ended business and leisure travel. Hertz revealed on April 29 that it had missed large rental payments related to its rental cars.

Used car collapse

Although all travel-related businesses have been affected by the pandemic, a large part of what has weighed on Hertz is its strategy of owning or leasing a large part of its fleet instead of acquiring them through agreements buyout with manufacturers. Hertz generally reacts to declining demand by selling cars in its fleet, which has particularly hit it with falling prices at used car auctions.

White & Case LLP is the company’s legal counsel, Moelis & Co. is the investment banker and FTI Consulting Inc. provides financial advice. Billionaire investor Carl Icahn has a 39% stake.

Hertz, originally known as Rent-a-Car Inc., was founded in Chicago in 1918. It operated 12,400 locations worldwide in February.

(Updates with lack of financing of the debtor in possession in the second paragraph.)

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