Car rental giant, Hertz became the biggest corporate collapse of the current COVID-19 crisis after it filed for Chapter 11 protection late on Friday night.
With more than $US18 billion in debt, Hertz’s failure was much larger than the $US4 billion held by retailer Neiman Marcus and the $US3.7 billion held by another retailer, JC Penney.
A third much smaller retailer, menswear chain, John Varvatos failed with around $US100 million of debt.
Analysts said Hertz’s collapse partly due to the COVID-19 crisis slashing car rentals, but it has been under pressure for years from the rise of Uber and other ride-hailing services.
Hertz’s car-rental brands include Dollar and Thrifty (as well as Hertz) all lost revenue when travel shut down due to the novel coronavirus in March and it started missing debt repayments in April.
In late March, Hertz shed 12,000 workers and put another 4,000 on leave, slashed vehicle purchases by 90%, and stopped all nonessential spending. The company said those moves would save $US2.5 billion year. But clearly it wasn’t enough.
There are another 22,000 people employed by the company around the world.
In an attempt to satisfy creditors holding asset-backed securities that finance its worldwide fleet of more than 500,000 vehicles, Hertz wanted to shrink itself by selling more than 30,000 cars a month until the end of this year in an effort to raise around $US5 billion.
The pandemic and collapse of the car industry stopped that initiative.
Hertz’s lenders were unwilling to give it another extension on its car lease debt payments passed a deadline on Friday. That saw Hertz file in the US Bankruptcy Court in Delaware. Hertz and its subsidiaries will continue to operate, according to a release from the company.
By the end of March, Hertz Global Holdings had only $1 billion of available cash to remain in business and service its $US18.7 billion.
Of that $US18.7 billion $14 billion of it was what is called securitised 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.
The Pandemic provided another whammy by slashing the value of Hertz’s car fleet, adding more pressure on the company.
A big loser could be US investor Carl Icahn who picked up a stake in the company in 2014. Icahn’s holding company is Hertz’s largest shareholder, with a 38.9% stake in the company, according to FactSet.
Since that move the company’s financial condition has slowly weakened, the turnover of senior managers has risen (four CEO’s in six years) and the company has struggled.
Usually, in bankruptcies shareholders lose everything, especially in collapses the size of Hertz.
