Hertz files for Chapter 11 bankruptcy protection with $19 BILLION of debt

Car rental giant Hertz has filed for Chapter 11 bankruptcy protection in the US after 102 years of trading.  This does NOT include its international operations, so any pre-paid bookings made for non-US locations should be safe – for now.

The process will, according to the company, leave it with:

“a more robust financial structure that best positions the company for the future as it navigates what could be a prolonged travel and overall global economic recovery.”

It is also important to remember that many smaller Hertz outlets, especially off-airport ones, are franchises.  These would not be impacted if the company did disappear for good.

Hertz also owns Dollar, Thrifty and Firefly brands which are also impacted by this filing.

The numbers are startling.  The company has almost $19 billion of debt (double its 2019 revenue) and under $1 billion of cash.  The majority of the debt is secured against its fleet of cars, but Hertz was caught out by clauses which force the company to make cash payments to lenders if second-hand car values fall.  The debt is primarily in the form of bonds which require regular repayments and, because of the large number of bondholders, is far harder to restructure than bank debt.

Chapter 11, of course, is NOT ‘receivership’ in the UK sense.  Chapter 11 is effectively a standstill arrangement, which gives Hertz breathing space to restructure its affairs without the risk of its assets being seized by creditors.

It is difficult to imagine any scenario in which the Hertz brand will disappear.  At the end of the day, the brand is the ONLY real asset that the company has.  It does not own any of its cars outright and the only ‘assets’ it has are its customer list and leases on prime airport pick-up locations.

The lenders should recover most of their money if the Hertz fleet of 560,000 vehicles did have to be liquidated, although it is beneficial for the entire car industry to keep the company alive.  CNN reported that car rental companies buy 10% of all new cars in the US – 1.7 million vehicles last year.   One plan, apparently, is for Hertz to begin selling down its fleet at the rate of 30,000 cars per month to raise funds.

It is bad news for Hertz shareholders, of course, although they had already lost over 80% of their value this year.  In truth, the car rental industry in the United States has been in trouble ever since the launch of Uber and Lyft.  Many travellers now find it more convenient to use a rideshare service during their travels rather than deal with the hassles of hiring a car.