Coronavirus and debt push Hertz to file for bankruptcy protection




  • In Business
  • 2020-05-23 05:48:38Z
  • By The Telegraph
Coronavirus and debt push Hertz to file for bankruptcy protection
Coronavirus and debt push Hertz to file for bankruptcy protection  

Hertz has filed for bankruptcy protection, unable to withstand the coronavirus pandemic that has crippled global travel and, with it, the heavily indebted 102-year-old car rental company's business.

The Estero, Florida-based company's lenders were unwilling to grant it another extension on its auto lease debt payments past a Friday deadline, triggering the filing in US Bankruptcy Court in Delaware.

Hertz and its subsidiaries will continue to operate, according to a release from the company. Hertz's principal international operating regions and franchised locations are not included in the filing, the statement said.

By the end of March, Hertz Global Holdings had racked up more than $24 billion (£19.7 billion) in debt, according to the bankruptcy filing, with only $1 billion of available cash.

Starting in mid-March, the company - whose car-rental bands also include Dollar and Thrifty - lost all revenue when travel shut down due to coronavirus.

The company made "significant efforts" but couldn't raise money on the capital markets, so it started missing payments to creditors in April, the filing said.

Hertz has also been plagued by management upheaval, naming its fourth chief executive in six years on May 18.

"No business is built for zero revenue," former chief executive Kathryn Marinello said on the company's first-quarter earnings conference call on May 12. "There's only so long that companies' reserves will carry them."

In late March, Hertz shed 12,000 workers and put another 4,000 on furlough, cut vehicle acquisitions by 90 per cent and stopped all non-essential spending. The company said the moves would save $2.5 billion per year.

But the cuts came too late to save Hertz, the nation's No.2 auto-rental company founded in 1918 by Walter L. Jacobs, who started in Chicago with a fleet of a dozen Ford Model Ts. Mr Jacobs sold the company, initially called Rent-A-Car, 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 a 50-50 chance "given it was slower to cut costs".

On May 18, Hertz named operations chief Paul Stone as chief executive and announced that Ms Marinello would step down as chief executive and from the company's board. Mr Mazari called the step unusual just days before a potential bankruptcy filing. He also noted that chief executive changes have been common at Hertz since financier Carl Icahn entered the company in 2014.

Mr Icahn's holding company is Hertz's largest shareholder, with a 38.9 per cent stake in the company, according to FactSet.

Deutsche Bank analyst Chris Woronka credited Ms Marinello with reigniting Hertz's revenue growth, writing in a note to investors that it rose 16 per cent in 2018 and 2019 combined.

Hertz's bankruptcy protection filing was hardly 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 debt and may not have enough cash to keep operating.

"Management has concluded there is substantial doubt regarding the company's ability to continue as a going concern within one year from the issuance date of this quarterly report," it said.

Under a Chapter 11 restructuring, creditors will have to settle for less than full repayment. Its biggest creditors are banks, but the filing lists IBM, Lyft, United and Southwest Airlines as others owed between $6 million and $23 million each.

Hertz isn't the first struggling company to be pushed into bankruptcy by the coronavirus crisis. The company joins department store chain J.C. Penney, as well as Neiman Marcus, J.Crew and Stage Stores.

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