Hertz Global Holdings Inc., one of the nation’s largest car-rental companies, filed for bankruptcy protection Friday, saddled with about $19 billion in debt and nearly 700,000 vehicles that have been largely idled because of the coronavirus.
It’s been well documented that Hertz was struggling financially after it missed a collateral payment in April. Management bought the company time as it reached a deal with its largest lenders to give it until tonight to develop a strategy that accurately reflected the negative impacts of COVID-19. That answer seems to be what many have feared: bankruptcy.
“With the severity of the Covid-19 impact on our business, and the uncertainty of when travel and the economy will rebound, we need to take further steps to weather a potentially prolonged recovery,” Paul Stone, Hertz’s chief executive officer, said in a statement. The Estero, Florida-based company named him its fifth CEO since 2014 just four days before the bankruptcy filing.
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The next step for Hertz is uncertain, but it’s possible the company will be more valuable sold off in parts. Major lenders have roughly $3.4 billion in debt and could force liquidation of its vehicles or other assets that include real estate and trademarks. In terms of the industry, Avis Budget Group (NASDAQ:CAR) is likely to gain market share but will also deal with a potential flooding of vehicles from a Hertz liquidation, further depressing used-car prices. It’s also possible foreign vehicle rental companies could look to expand into the U.S. by scooping up some Hertz trademarks or assets on the cheap.
Even before the after-hours decline, it was clear investors saw a gap between Avis Budget Group’s ability to weather the COVID-19 storm and a more likely Hertz bankruptcy, as the following chart shows.
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