Seeking protection
Decision follows layoffs, furloughs, spending cutbacks
Unable to withstand the pandemic that has crippled global travel, Hertz, the car rental company, 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, Hertz has filed for bankruptcy protection.
The Estero, Fla.-based company’s lenders were unwilling to grant it another extension on its auto lease debt payments past a Friday deadline, triggering the filing on Friday in U.S. 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.
By the end of March, Hertz Global Holdings Inc. had racked up $18.7 billion in debt 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 the 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 CEO in six years on May 18.
“No business is built for zero revenue,” former CEO
Kathryn Marinello said on the company’s first-quarter earnings conference call 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 percent and stopped all nonessential 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. Jacobs sold the company, initially 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 a 50-50 chance “given it was slower to cut costs.”
On May 18, Hertz named operations chief Paul
Stone as CEO and announced that Marinello would step down as CEO and from the company’s board. Mazari called the step unusual just days before a potential bankruptcy filing. He also noted that CEO changes have been common at Hertz since financier Carl Icahn entered the firm in 2014.
Icahn’s holding company is Hertz’s largest shareholder.
Deutsche Bank analyst Chris Woronka credited Marinello with reigniting Hertz’s revenue growth, writing in a note to investors that it rose 16 percent in 2018 and 2019 combined.
Hertz’s bankruptcy protection filing was hardly a surprise. In its firstquarter 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.
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.