Impact of Coronavirus Pushes Hertz to File for Bankruptcy

Car rental company Hertz Global Holdings, Inc. has been struggling as rental car demand has vanished amid the coronavirus outbreak, prompting the company to file for bankruptcy.

It was this past Friday that Hertz filed Chapter 11 bankruptcy in Delaware that will allow the company to
keep operating while it devises a plan to pay creditors and turn around the business.

According to a source familiar with the situation, the second-largest U.S car-rental-car company does not need debtor-in-possession financing as it it has more than $1 billion cash on hand.

The company’s court petition listed about $25.8 billion in assets and $24.4 billion of debts, and its biggest creditors include IBM Corp. and Lyft Inc.

“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 recently appointed chief executive officer, said in a statement.

Analysts are concerned that Hertz’s filing could lead to ramifications in the auto industry. Hertz has a fleet of about 400,000 cars in the U.S. that are not subject to repurchase agreements with vehicle manufacturers and could be liquidated.

Benchmark Co. analyst Michael Ward wrote in a report last week, “The risk for the auto sector occurs if the creditors of the debt that is secured by the vehicles decides to liquidate the fleet to repay the bonds.”

According to Ward, the impact those sales may have on used-car prices could be minimized by the sale of those vehicles taking place over the course of several months.

Joseph Acosta, a partner in the bankruptcy law firm of Dorsey & Whitney has commented to Yahoo Finance,

“Hertz may have little choice but to scale down its operations and sell assets to pay down its significant secured debt. Hopefully, the restructuring expenses will not bury the company in the process.”

Disclaimer: We have no position in Hertz Global Holdings Inc. (NYSE: HTZ) and have not been compensated for this article.