Hertz Files For Bankruptcy Amid Coronavirus Impacts

Hertz Files For Bankruptcy Amid Coronavirus Impacts

In late April, a public filing showed Hertz missed lease payments, suggesting bankruptcy was on the horizon.  On Friday, the car rental company filed for Chapter 11 bankruptcy protection in the United States.  Hertz’s business essentially evaporated since the outbreak of the coronavirus pandemic, and the company wasn’t able to reach agreements with its creditors on badly needed debt relief.

Hertz voluntarily filed for Chapter 11 bankruptcy protection.  However, it did not include its European, Australian, and New Zealand branches in the filing.  CNBC reports that the company has over $19 billion in debt and 38,000 employees.  Last month, the company announced 10,000 layoffs for its North American branches.  Chapter 11 bankruptcy does not mean that Hertz is necessarily going out of business.  Chapter 11 usually includes a restructuring plan to keep the company in business and a plan to pay back its creditors over time.

Impacts From Coronavirus

Hertz’s business saw a substantial decrease since the coronavirus outbreak.  The rental company relies on airport rentals for a substantial part of its business.  Of course, limits on travel substantially decreased the number of airline passengers since March.  In turn, that’s led to a significant decrease in business for the car rental giant.  It’s hard to say when air travel will return to pre-coronavirus levels.  While passenger traffic increased over the last week, data shows 73% of domestic U.S. flights are still less than 50% full.  Airline CEOs predict it could take years for business to return to normal.  The car rental industry already suffered from setbacks before coronavirus as they were left competing with Uber and other ride sharing companies.

In a securities filing In April, the company claimed it “experienced a rapid, sudden and dramatic negative impact on their businesses” in relation to the COVID-19 pandemic.  The company also said it “is taking action actions to preserve liquidity.”  Unfortunately, the company was not able to reach agreement with creditors on this topic.

Debt

Hertz has about $1 billion in cash.  But its lease payments increased as the value of their cars diminished because of coronavirus.  Reports suggest that Hertz plans to sell 30,000 cars a month through the end of the year in order to get $5 billion in cash.  The forbearance on their missed lease payments last month were set to expire on May 22.

Bottom Line

On Friday, car rental giant Hertz filed for Chapter 11 in U.S. Bankruptcy Court.  The move was largely expected after a securities filing last month detailed financial problems.  However, it’s one of the largest companies impacted so far.  It’s very sad to see a giant like Hertz suffering from the coronavirus pandemic.  Even more disappointing, it is unlikely they will be the last company to file for Chapter 11 in the coming months.