The 102-year-old car rental firm Hertz has filed for bankruptcy protection after its business all but vanished during the coronavirus pandemic.
Hertz said in a US court filing on Friday that it had voluntarily filed for Chapter 11 reorganisation. Its international operating regions including Europe, Australia and New Zealand were not included in the US proceedings.
The firm, whose largest shareholder is the billionaire investor Carl Icahn, is reeling from government orders restricting travel. A large portion of Hertz’s revenue comes from car rentals at airports, which have all but dried up.
With nearly $19bn (£15.6bn) of debt and roughly 38,000 employees worldwide as of the end of 2019, Hertz is among the largest companies to be undone by the pandemic.
US airlines have so far avoided similar fates after receiving billions of dollars in government aid, an avenue Hertz has explored without success.
The Florida-based company, which operates Hertz, Dollar and Thrifty car rentals, held talks with creditors after skipping significant car lease payments due in April. Forbearance and waiver agreements on the missed payments were set to expire on 22 May. Hertz has about $1bn of cash.
The size of Hertz’s lease obligations have increased as the value of vehicles has declined because of the pandemic. In an attempt to appease creditors holding asset-backed securities that finance its fleet of more than 500,000 vehicles, Hertz has proposed selling more than 30,000 cars a month through to the end of the year in an effort to raise around $5bn, a person familiar with the matter said.
On 16 May the board promoted an executive, Paul Stone, to replace Kathryn Marinello as CEO. Hertz earlier laid off about 10,000 employees and said there was substantial doubt about its ability to continue as a going concern.
Hertz’s woes are compounded by the complexity of its balance sheet, which includes more than $14bn of 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 falls.
Hertz also has traditional credit lines, loans and bonds with conditions that can trigger defaults based on missing those lease payments or failing to meet other conditions, such as delivering a timely operating budget and reimbursing funds it has borrowed.
Hertz earlier signalled it could avoid bankruptcy if it received relief from creditors or financial aid that the company and its competitors have sought from the US government. The US Treasury has started assisting companies as part of an unprecedented $2.3tn relief package passed by Congress and signed into law.
A trade group representing Hertz, the American Car Rental Association, has asked Congress to do more for the industry by expanding coronavirus relief efforts and advancing new legislation targeting tourism-related businesses.
Even before the pandemic, Hertz and its peers were under financial pressure as travellers shifted to ride-hailing services such as Uber. To combat that threat, Hertz had adopted a turnaround plan, aiming to modernise its smartphone apps and improve management of its fleet of rental cars.
Hertz traces its roots to 1918 when Walter Jacobs, then a pioneer of renting cars, founded a company allowing customers to temporarily drive one of a dozen Ford Model Ts, according to the company’s website.
