COVID-19 Strikes Again: Hertz Files for Chapter 11 Bankruptcy Protection
As expectedcar rental giant Hertz Global Holdings ( HTZG.Q ) filed for Chapter 11 bankruptcy on the evening of Friday, May 22. The COVID-19 health crisis dealt Hertz a brutal blow that the company was not equipped to absorb.
The filing of Chapter 11 was not presented as a step towards liquidation of company assets. Instead, Hertz said it was taking steps to strengthen its capital structure.
Hertz will continue to run business as usual, offering car rentals under brands such as Hertz, Thrifty, Dollar, Firefly, and more. Employee paychecks are still available, backed by $1 billion in remaining cash reserves. The same balance sheet also contains $18.7 billion in long-term debt.
The financial situation
In an effort to make the money last, Hertz laid off or furloughed nearly half of its workforce, affecting 20,000 employees. Many rental outlets are closed and revenue-generating traffic to the remaining car rental outlets is a mere trickle. The largely unused vehicle fleet doesn’t even fetch much money at used car auctions due to low consumer demand for used vehicles.
“No business is built for zero income,” Hertz CEO Kathy Marinello said in call for first quarter results earlier this month. “Only so long will the company’s reserves carry them.”
The filing of the bankruptcy petition relates only to the domestic operations owned by the Hertz company. Franchise locations and international rental fleets in places like Europe, New Zealand and Australia are not affected, although they may have to take similar action locally later.
Meanwhile, Hertz continues to negotiate its covenants, hoping to find a solution that satisfies its creditors while keeping Hertz in business for the long term. The company had a good year in 2019 and would like to resume its activities quickly. However, the novel coronavirus permanently changed the market for travel services.
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