Hertz Global Holdings filed Chapter 11 bankruptcy late Friday (May 22) as the coronavirus pandemic continues to dry up travel and tourism and all but shut down the car-rental business.
"Hertz has over a century of industry leadership and we entered 2020 with strong revenue and earnings momentum," company President and CEO Paul Stone said in announcing the filing. "[But] with the severity of the COVID-19 impact on our business and the uncertainty of when travel and the economy will rebound, we need to take further steps to weather a potentially prolonged recovery. Today's action will protect the value of our business, allow us to continue our operations and serve our customers and provide the time to put in place a new, stronger financial foundation to move successfully through this pandemic and to better position us for the future.”
Hertz said that it’s entering Chapter 11 more than $1 billion cash on hand and might seek to borrow more, meaning that the company’s normal operations can continue.
“All of Hertz's businesses globally, including its Hertz, Dollar, Thrifty, Firefly, Hertz Car Sales, and Donlen subsidiaries, are open and serving customers,” the company said in a statement. “All reservations, promotional offers, vouchers and customer and loyalty programs including rewards points are expected to continue as usual.”
The company added that Friday's filing only involves Hertz’s company-owned U.S. and Canadian operations. Business units in Europe, Australia and New Zealand are not affected, nor are Hertz's franchised locations.
Hertz, which trails only Enterprise as America' largest car-rental company, noted that its business “was on a strong upward financial trajectory prior to the COVID-19 pandemic, including 10 consecutive quarters of year-over-year revenue growth and nine quarters of year-over-year adjusted corporate EBITDA improvement.”
The firm added that it “moved quickly to adjust” when the pandemic began, furloughing or laying off approximately half of its 40,000 workforce, selling cars and canceling new-vehicle orders and deferring capital and marketing spend. Hertz said it “also actively engaged with many of its largest creditors to temporarily reduce the required payments under the company's vehicle operating lease.
“[But] although Hertz negotiated short-term relief with such creditors, it was unable to secure longer-term agreements,” the company said. “Additionally, the company sought assistance from the U.S. government, but access to funding for the rental car industry did not become available.”
The Wall Street Journal reported earlier Friday that Hertz had been holding talks with creditors after skipping major car-lease payments due in April, but that forbearance and waiver agreements on the missed payments were set to expire Friday.
The paper said Hertz has $19 billion in debt, comprising $4.3 billion of corporate bonds and loans and $14.4 billion in vehicle-backed debt held at financing subsidiaries. Still, the Journal said liquidation poses a risk to bondholders. While a quick sell-off of vehicles could raise money, flooding the market with used rental cars would lower their prices, per the report.
“Cars aren’t like fine wine; they don’t get better with age,” Dan Zwirn, CEO of Arena Investors, who has held debt and equity stakes in auto companies for more than 20 years, told the WSJ.
News of the possible Chapter 11 filing sent Hertz stock plunging 7.5 percent lower on the New York Stock Exchange during regular trading Friday, then down another 35.9 percent in after-hours trading to $1.82.